Novated Lease Calculator for Australia
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What is a Novated Lease?
A novated lease in Australia is a three-way agreement between you (the employee), your employer, and a finance company. It allows you to finance a new or used car and pay for its running costs directly from your pre-tax salary. This effectively reduces your taxable income, potentially leading to significant tax savings.
Your employer makes the lease payments and pays for the car’s running costs (fuel, insurance, registration, maintenance) on your behalf, typically deducting these amounts from your gross salary. Because these deductions are made before income tax is applied, you only pay tax on a lower amount, which is where the tax benefits arise.
At the end of the lease term, you usually have a “residual value” (or balloon payment) to pay. After this, you can choose to own the car outright, trade it in for a new one with a new novated lease, or refinance the residual.
Key Benefits of a Novated Lease
- Tax Savings: The most significant benefit. Lease payments and many running costs are paid from your pre-tax salary, reducing your taxable income and the amount of income tax you pay.
- Budgeting Convenience: All your car-related expenses are bundled into one regular payment, making budgeting simpler and more predictable.
- GST Savings: As the employer claims back the GST on the vehicle purchase price and running costs, these savings are often passed on to you.
- Choose Your Car: You typically have the freedom to choose almost any new or used car (subject to lender approval).
- Simplified Car Ownership: The novated lease provider often manages vehicle purchasing, servicing, and insurance, reducing your administrative burden.
- Potential for Savings on Running Costs: Lease providers often have fleet discounts on fuel, servicing, and tyres.
Frequently Asked Questions
Is a novated lease right for me?
A novated lease is generally beneficial for employees who drive a significant amount of kilometres, earn a mid to high income, and want to reduce their taxable income. It’s essential to consider your individual financial situation and driving habits.
What is Fringe Benefits Tax (FBT)?
FBT is a tax employers pay on certain benefits provided to their employees in addition to their salary. For novated leases, FBT is usually calculated on the private use of the car. Novated lease providers often manage FBT to minimise its impact, using methods like the “employee contribution method” to effectively eliminate FBT.
What happens at the end of the lease term?
At the end of your novated lease, you typically have several options:
- Pay the residual value and own the car outright.
- Trade in the vehicle and start a new novated lease on a different car.
- Refinance the residual value for a new loan term.
- Sell the car and use the proceeds to pay the residual.
Can I novate a used car?
Yes, many novated lease providers allow you to novate a used car, as long as it meets certain age and kilometre restrictions. This can be a great way to save money on a pre-owned vehicle.
Important Australian Financial Resources
For detailed and official information, please refer to:
- Australian Taxation Office (ATO) – Official source for tax and FBT information.
- Moneysmart.gov.au – ASIC’s website offering free, independent financial guidance.