What is Novated Leasing and How Do You Choose a Good Provider?
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More Australians are discovering the benefits of novated leasing, with the salary sacrificing arrangement booming in popularity. A novated lease allows you to pay for your car and its running costs with your pre-tax salary. This dramatically reduces your taxable income, potentially saving you thousands each year.
Once used almost exclusively by big corporations and the top end of town, leaselab co-founders Alex and Julian Davis are now helping everyday working Aussies benefit from novated leasing.
So, how does it work?
A novated lease is a way to salary sacrifice your car and pay for it out of your pre-tax income. You lease a car for a set term, typically between one to five years, instead of buying it outright. You then transfer the lease to your employer, who deducts the cost of the car and its running costs from your pre-tax salary each pay cycle.
This reduces the income tax you pay, allowing you to keep more money in your pocket. You also avoid paying GST, so you save 10% on your vehicle as well as running costs like fuel, servicing, roadside assistance, registration and insurance. At the end of the lease, you can sell the car, pay the residual and keep it, or refinance.
What savings are available?
On average, leaselab customers save $39,781 over the term of their lease.
Let’s use an example to see how this works.
If you earned $120,000 a year, you could expect to pay around $31,867 in tax, leaving you with $88,133 in your pocket.
Say you decide to get a new Ford Ranger retailing at $72,985 drive away through a novated lease, you would instantly avoid paying GST while reducing your annual tax bill by over $4,646 per year. Over a five-year lease, the total tax savings add up to $23,232.
Additional savings for electric vehicles (EVs)
Aussies looking to get an EV can enjoy additional savings thanks to the Electric Car Discount. This exempts EVs priced under $89,332 (plus on road costs) from the 47% Fringe Benefits Tax (FBT) applied to most other cars on the market. Further savings are available through the 5% reduction in import tariffs, and of course, no longer needing to purchase petrol.
These concessions mean getting an EV through a novated lease and packing your running costs can save you up to 57% compared to a traditional car loan. By purchasing a standard 2023 Polestar 2, for example, you can save around $7,754 per year on a five-year lease.
Who is eligible for a novated lease?
To qualify for a novated lease, you just need to be employed. If you are self-employed, you can get a novated lease, provided you pay yourself via PAYG.
Your employer also needs to offer novated leasing, something novated lease providers can help them set up. Novated leasing is a win-win scenario, offering significant savings to employees, and a cost neutral benefit for employers wanting to attract and retain talent.
How to choose the right provider
A novated lease can last for up to five years, so you want to choose a provider for the long run. A good provider aims to simplify leasing, helping you enjoy the perks without the hurdles. They help demystify the complex world of novated leases while ensuring you understand the impact on your overall financial health.
A good provider ensures you’re a good fit, gets a good idea of your initial budget, expected usage and spend, while actively managing your account over the lease period.
As a financial product, a good provider also ensures it’s easy to check your novated lease balance as needed. Ask your provider if you will have access to live account statements, so you can view your account status at your convenience.
leaselab is one of the fastest-growing novated lease specialists in Australia. Founded by brothers Alex and Julian Davis, leaselab helps everyday Aussies get the car they want while saving serious money.
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Zachary Skinner is the editor of TechDrivePlay.com, where tech, cars and adventure share the fast lane.
A former snowboarding pro and programmer, he brings both creative flair and technical know-how to his reviews. From high-performance cars to clever gadgets, he explores how innovation shapes the way we move, connect and live.
