It’s a form of salary sacrificing, whereby your new (or used) vehicle payments are deducted from your pay before the tax office takes its cut. This lowers your tax obligations.

2024-04-16 12:18:14

NovatedleasingisapopularwayforAustralianstofinanceaneworusedvehiclewhilealsoreducingtheirtaxobligations.It’saformofsalarysacrificingwhereyourvehiclepaymentsaredeductedfromyourpre-taxsalary,effectivelyreducingyourtaxableincome.

Theprocesstypicallyinvolvesthreeparties:theemployee,theemployer,andthefinancecompany.Theemployeeselectsavehicleoftheirchoiceandappliesforfinancewithanovatedleaseprovider.Onceapproved,theemployeeandemployerenterintoanovationagreement,whichallowstheemployertomaketheleasepaymentsonbehalfoftheemployeeusingtheirpre-taxincome.

Oneofthekeybenefitsofnovatedleasingisthepotentialtaxsavings.Byhavingtheleasepaymentsdeductedfromyourpre-taxsalary,youeffectivelyloweryourtaxableincome.Thiscanresultinalowertaxbillattheendofthefinancialyear,aswellasincreasingyourtake-homepay.Additionally,GSTontheleasepaymentsisalsopaidwithpre-taxdollars,furtherreducingyouroverallcosts.

Anotheradvantageofnovatedleasingistheconvenienceandflexibilityitoffers.Theleasepaymentsaremadeautomaticallybyyouremployer,soyoudon’thavetoworryaboutrememberingtomakepaymentsorbudgetingforthem.Youalsohavetheflexibilitytochoosethevehiclemakeandmodel,aswellastheleasetermandkilometrelimit,tosuityourneedsandbudget.

Therearesomeconsiderationstokeepinmindwhenitcomestonovatedleasing.Forexample,ifyouleaveyourjoborchangeemployers,thenovationagreementmayend,andyoucouldberesponsibleformakingtheleasepaymentsyourself.Additionally,whilenovatedleasingcanprovidetaxbenefits,itmaynotbethemostcost-effectiveoptionforeveryone.It’simportanttocrunchthenumbersandcomparethecostsofnovatedleasingwithotherfinanceoptionsbeforemakingadecision.

Inconclusion,novatedleasingisapopularwayforAustralianstofinanceavehiclewhilealsoreducingtheirtaxobligations.Byhavingtheleasepaymentsdeductedfromyourpre-taxsalary,youcanpotentiallysavemoneyontaxesandincreaseyourtake-homepay.However,it’simportanttoconsiderallfactorsandcomparecostsbeforedecidingifnovatedleasingistherightoptionforyou.