Although novated leasing has been part of the automotive scene for a long time, it is still a mystery to many – including those who could benefit most.
Novated lease and fleet management company Fleetcare recently put together a summary of what novated leasing actually is, and how it works, busting some myths and misconceptions along the way.
Here are Fleetcare's answers to what it claims are the top five questions about novated leases
What is a novated lease?
Put simply, a novated lease allows you to purchase a car of your choice, on your terms with payments made out of your pre-tax salary. This means you are effectively lowering your taxable income.
Am I eligible for a novated lease?
As long as you’re gainfully employed and not in a probation period, you’re able to take up a lease providing your employer is willing to enter in an agreement also.
Will a novated lease save me money?
In many cases you can save money by taking out a novated lease agreement rather than a traditional car finance option. Fleetcar claims that paying for the vehicle out of your pre-tax salary means may even move you into a lower tax bracket.
As all car repayments and servicing costs are bundled into one monthly bill, you also won’t pay any GST on these expenses. You also don’t pay GST on the purchase price of your vehicle.
What happens if I lose my job?
Most leasing companies should be able to transfer your novated lease to a standard car loan with a financier. Some companies may also offer lease protection insurance to cover repayments for a limited period while you’re unemployed.
What happens to the car when the lease expires?
Usually a number of options are available to you at the end of your lease period. Shortly before your contract is due to finish, your leasing provider will contact you to discuss these options. You will typically be able to do one of the following:
>> Refinance the vehicle with your current leasing provider (the car may have to be under a certain age, for example eight years)
>> Pay out the residual (amount still owing on the vehicle) and keep the car
>> Pay out the residual and then sell the car either privately or at a dealership
>> Have your leasing provider arrange resale via auction
>> Enter into a new novated lease with a newer car
Common Myths about Novated Leasing
Fleetcare claims there is significant misinformation circulated about novated leases. The company's nominated top five follows.
You need to be earning more than $70,000 per year
This is a common misconception. As long as your individual marginal tax rate is lower than the fringe benefit tax rate, a novated lease will work for you...
You can only lease a new vehicle
You can actually purchase a second hand vehicle via a novated lease. Usually the leasing company will stipulate the vehicle cannot be older than say, eight years at the end of the lease. And you can buy the car from either a private seller or licensed dealer.
I’m tied into my current employer
Simply not true. As noted above, you can, in most cases, transfer the lease to a standard loan and go from there. Be sure to ask your novated provider about this beforehand to avoid any difficulties.
You need to drive a lot of kilometres per year
Many people think you need to drive at least 10,000km per year for a novated lease to be beneficial. Changes to the FBT rules now mean even people who drive less than 200km a week can still see the benefits of a novated lease.
You can’t novate your current vehicle
You can actually apply for a novated lease with your existing vehicle. Even if you currently owe money on your vehicle to another financier, the leasing company will be able to build a lease package bundling all your expenses into one bill and pay out your financier.
This article was compiled in conjunction with independent novated lease and fleet management company, Fleetcare.