Novated lease
Drive Smarter with a Novated Lease: Unlock the Benefits for Your Business
Novated leasing is a powerful financial strategy that helps you maximise tax savings by using pre-tax income to cover car-related expenses. With the flexibility to choose your preferred vehicle and the simplicity of one all-inclusive payment, novated leasing offers a stress-free driving experience without the hassle of worrying about depreciation. It’s the ideal solution for both personal and business use, offering a tax-efficient, streamlined way to drive.
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How does novated lease work?
A novated lease is a three-way agreement between you, your employer, and the finance company. Essentially, you lease a vehicle of your choice, and your employer makes the lease payments on your behalf, using your pre-tax income. This reduces your taxable income and allows you to benefit from tax savings on car-related expenses such as lease payments, fuel, insurance, and maintenance.
The lease payments are deducted directly from your salary, simplifying your finances and budgeting. At the end of the lease term, you can either buy the car, extend the lease, or trade it in for a new model.
Pros
Tax savings
By using pre-tax dollars for your car-related expenses, you lower your taxable income, which can lead to substantial tax savings.
Simple payments
One consolidated payment covers all car-related costs, including the lease, fuel, insurance, and maintenance. This makes budgeting easier.
No depreciation worries
Unlike car ownership, you don't have to worry about the car's depreciation or resale value—it's all handled within the lease.
Flexible lease terms
Tailor your lease duration and structure to suit your financial situation, whether it's a short-term or long-term arrangement.
Vehicle flexibility
You have the freedom to choose any car that suits your preferences and lifestyle, whether it's a compact car or a luxury model.
Cons
End of lease options
You must decide what to do with the vehicle at the end of the leas whether to purchase, extend the lease, or upgrade. There may also be additional fees if you exceed the allowed kilometres or return the car in poor condition.
Limited ownership
With a novated lease, you don't technically own the vehicle, which may not suit those who prefer long-term ownership.
Responsibility for maintenance and running costs
While most novated leases cover general vehicle expenses, you are still responsible for maintaining the car and covering running costs (although this is usually included in your lease).
Why choose a novated lease?
Novated leasing offers several benefits that make it an attractive option for both businesses and employees
Tax savings
Maximise your tax benefits by covering car expenses, including lease payments, fuel, and maintenance, with pre-tax dollars. This reduces your taxable income, putting more money back in your pocket.
Financial control
Enjoy a simple, consolidated payment plan that covers all vehicle-related costs. No more juggling multiple bills just straightforward budgeting with a single, easy-to-manage payment.
Flexible terms
Novated leases are fully customizable. Whether you're after a short-term commitment or a longer-term arrangement, you can adjust the lease terms to suit your financial goals and lifestyle.
Choice of vehicle
From economical compacts to stylish SUVs, choose the car that fits your needs and preferences. You're not limited to a single make or model, giving you the freedom to drive what you really want.
Comparison of novated lease vs. novated subscription
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Frequently asked questions
on novated lease
The carbar novated lease is an ATO - approved arrangement between the employer, employee and financial institution that allows employees to use pre-tax dollars to pay for access to a car and all of its expenses.
With a carbar novated lease, you provide this benefit without adding any cost to your business, support your employee and enable them to reduce their carbon footprint and their tax.
Novated lease with carbar is easy!
- We take care of your employee
- Minimise FBT liability and maximise tax benefits
- Provide ongoing, direct support for both you and your employees
- Assist with policy and benefits implementation
A novated lease can potentially save on taxes for employers and employees in several ways. Here's a general overview of how it typically works:
- Salary Packaging: In a novated lease arrangement, the employee leases a vehicle through their employer. The lease payments are deducted from the employee's pre-tax income (salary sacrificing), which can lower the taxable income amount. This effectively reduces the amount of income tax the employee has to pay because their taxable income is lower.
- GST Savings: In Australia, the Goods and Services Tax (GST) on the vehicle's purchase price and running costs can be claimed back by the employer if they are registered for GST. This reduces the overall cost of the lease.
- GST Savings: In Australia, the Goods and Services Tax (GST) on the vehicle's purchase price and running costs can be claimed back by the employer if they are registered for GST. This reduces the overall cost of the lease.
- Fuel and Running Costs: Similar to the GST benefit, some running costs such as fuel and maintenance may also be paid using pre-tax income, further reducing the employee's taxable income.
- Fringe Benefits Tax (FBT) Savings: Under a novated lease, the employer typically pays the lease and running costs on behalf of the employee. The FBT liability is calculated based on the value of the car and the lease payments. However, the employee may be able to reduce their FBT liability by choosing a car that qualifies for concessional treatment under FBT rules. There could be further savings for eligible cars that are zero or low emissions vehicles that are exempt from Fringe Benefits Tax (FBT) and first held and used after 1 July 2022*
- Insurance and Registration: These costs can sometimes be included in the novated lease arrangement, allowing the employee to pay for them with pre-tax income.
It's important to note that the tax savings and benefits of a novated lease can vary depending on individual circumstances. Employees considering a novated lease should seek advice from a qualified financial advisor or accountant to understand how it specifically applies to their situation and to ensure they are making an informed decision.
As an employer, it's important to recognise the dedication and commitment of your employees.
Offering a novated lease is a straightforward and administratively friendly way to provide them with significant tax-saving benefits and potentially increase their take-home pay.
A novated lease helps employers:
- Support and advance their climate change agenda.
- Attract and retain employees.
- Provide potential tax savings to employees.
- Implement an administration-lean benefits program that drives engagement and delivers true value.
With a carbar novated lease, you typically have the freedom to choose your vehicle, though there are some considerations to keep in mind.
The cost of the car, including the lease payments and running costs, should fit within the budget outlined in your novated lease agreement. Ensure the total cost is manageable within your salary packaging arrangement.
To maximise tax benefits, the vehicle should generally be used for work-related purposes. Ensure that your choice complies with tax regulations.
While you usually have a wide range of options with a novated lease, it's important to review the specifics with your employer and leasing provider to ensure your choice aligns with any guidelines and budget constraints.
Put simply, a novated car lease is a salary packaging arrangement where your employer manages the cost of your car through your pre-tax salary. Instead of paying for your car with post-tax income, you make payments through payroll using a combination of pre-tax salary, which can help reduce your taxable income and potentially save you money on tax.
With a novated lease, all costs associated with car ownership such as the lease payments, registration, insurance, maintenance, and servicing can be bundled into a single payment. This arrangement can also offer additional savings through GST and tax benefits.
If you change jobs during a novated lease, several things can happen depending on the specifics of your lease agreement and the arrangements with your new employer. Here's what you need to consider:
Transfer of Lease: You may be able to transfer the novated lease to your new employer. This usually requires your new employer to agree to take over the lease arrangement. The leasing company will need to approve the transfer, and there might be administrative fees involved.
Lease Termination: If your new employer is unwilling to take over the lease, you might need to terminate the lease early. This could involve paying out the remaining balance of the lease or any early termination fees specified in the contract.
Personal Responsibility: If you're unable to transfer the lease or end it early, you may be personally responsible for the lease payments until the end of the term. This could affect your finances if you're not able to cover the payments from other sources.
It's best to discuss your situation with the carbar team and your new employer to explore your options and understand any implications.
Maintenance costs can be included in a novated lease, but this depends on the specific terms of the lease agreement. Here's how it generally works:
- Full Maintenance Lease: In a full maintenance novated lease, the lease agreement typically covers not only the vehicle's depreciation but also all maintenance and servicing costs. This might include routine servicing, repairs, and sometimes even replacement of parts. This type of lease provides a comprehensive package and can simplify budgeting since all costs are bundled into one payment.
- Novated Lease Without Maintenance: If maintenance is not included, you would be responsible for covering these costs separately. This might mean paying for regular servicing, repairs, and other vehicle-related expenses out of pocket.
- Optional Maintenance Packages: Some lease providers offer optional maintenance packages that you can add to your lease agreement. This allows you to choose a level of maintenance coverage that fits your needs and budget.