Reduce your taxable income & save

Novated leases are a ‘win-win’ for both employees and employers. Employees benefit from ex-GST pricing on a car for personal use, and can reduce their income tax liabilities. Employers can offer novated leasing as an incentive, at no cost to the business.

In summary, the best benefits of a novated lease in Australia include:

• No GST payable on the car
• No GST payable on running costs
• GST can be claimed by the employer as a tax credit
• Reduce payroll tax for employers
• No obligation on the part of the employer to either the vehicle or the lease
• A cost-effective way of acquiring a vehicle
• Employee income tax savings
• Fully maintained personal vehicle — including fuel, insurance, servicing, repairs, roadside assist and registration
• 100% personal use of the vehicle
• Option to de-novate and re-novate if changing employers

By using a novated lease, an employee can acquire a vehicle without paying GST (Goods and Services Tax) on it. As the leasing company buys the vehicle to lease, the borrower will not pay GST on the initial purchase price of the vehicle.

Any GST included in the lease charges can be claimed by the employer, which is then passed on as savings to the employee leasing the vehicle.

The saving is 10% of the vehicle's purchase price up to a maximum saving of $6,191.

You have a few options available at the end of your novated lease term:

1. Pay any residual/balloon amount and gain full ownership of the vehicle

2. Sell the vehicle and claim any profit from the vehicle (above the residual) tax-free

3. Refinance the vehicle

In some cases, you may be able to return the vehicle to the novated leasing company without paying any residual amount

Balloon or ‘residual’ amounts are pre-determined lump-sum repayments, which are paid at the end of the novated lease term. Residual payments reduce regular repayments by including a higher final payment. Learn more here.

The residual amount will vary, and shorter terms will have higher residuals attached. If you are using the car to travel extensively (35,000 km or more per year) you can usually opt for a lower residual. Speak to your leasing provider about this.

At the end of your novated lease, you will need to either pay the residual amount owing, or consider refinancing the vehicle under a new agreement.

In Australia, there are around 40-50 novated leasing companies that can work with you and your employer to establish your novated lease. You can qualify if you are:

• Employed on a full-time or permanent part-time basis
• Working for an employer who supports a novated leasing agreement
• Capable of meeting repayments for the duration of the lease
• Over 21 years of age. On rare occasions, lenders may approve applicants between 18 and 21 years old

You can essentially have any new vehicle that best suits you and your lifestyle — from SUVs to 4WDs and sports cars.

Used cars are also possible but cannot be more than 15 years old at the end of the term. For example, you could buy a 10-year-old vehicle and have a 5-year term.

There are only two restrictions to consider:

• It needs to be a passenger vehicle (including utes)
• The vehicle’s maximum payload cannot exceed 1,000 kg

You can even use a novated lease to finance used cars (including buying a car from a private seller), provided the vehicle is not older than 15 years at the end of your lease term. For example:

• You choose a used car which is seven years old
• Your novated lease term is five years
• Your car will be 12 years old at the end of the term