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Is Salary Sacrificing a Car Worth It?
Let’s say, Hell yes! Novated leases are great for employees and employers alike. Let’s have a look at the benefits for employees first.
What are the main reasons you’d choose a novated lease?
A novated lease really is a smart financial choice. Here are some of the benefits:
Tax Savings – possibly the number 1 reason people choose a novated lease is for the tax benefits. You can access huge tax savings by paying for your car and your car’s running costs from your pre-tax income through your employer. And that’s just the start. When you buy your car, you won’t pay GST on the purchase price.
It’s important to ensure your novated lease Fringe Benefit Tax (FBT) is lower than the income tax you would have paid on your salary. We can let you know if you’ll benefit financially. More on FBT later.
Car Purchase Savings – Get the best price on your new car and great value for your trade-in. You can even take out a novated lease on the car you currently own or novate second car if you really want to increase your savings.
Running Cost Savings – we can take care of all of your servicing, repairs, fuel, insurance and more. We’ve negotiated some pretty amazing deals with our suppliers and we’ll happily pass on the savings to you.
What is Fringe Benefit Tax (FBT)?
FBT is a tax generated when an employer provides a non-cash benefit to an employee. The Australian Tax Office implemented this to overcome past deficiencies in income tax law, which enabled employers to provide non-taxable perks as part of an employee’s salary.
Fringe benefits that can be taxed are varied – anything from a gym membership to car parking. The Fringe Benefit Tax is most known for its impact on novated car leases.
While the employee is paying for the lease through their pre-tax income, they are still benefiting from the arrangement, so it’s deemed a ‘fringe benefit’ under taxation law.
How Do You Calculate Novated Lease FBT?
First of all, don’t sweat it too much – we can help with that. But if you’re into DIY calculations, here’s how it works.
There’s two ways a novated lease FBT is calculated – the Statutory Method and the Operating Cost Method.
The Statutory Method – this uses the base value of a car to calculate the taxable value. It assumes the personal use of the car will be 20 per cent.
The Operating Cost Method – this calculates novated lease FBT by considering the total costs of operating the car over a year and the percentage of its private use. This is the best method to use if your car is primarily used for work.
You’ll need to track business vs private use (log books!) and track your operational costs like fuel, oil, servicing. The lower the incidence of private use, the lower the taxable value.
Other employee benefits
No Upfront Deposits
Some people don’t own cars and make do with public transport because of the initial costs involved in purchasing and setting up a car. Unlike most car finance plans, a salary sacrifice package can get you in a new car without paying an upfront deposit.
You shouldn’t have to miss out on driving your dream car just because you can’t or don’t want to pay a hefty deposit. Through novated leasing and salary sacrificing, you get a shiny new car , without parting with a load of cash in the process.
Fixed repayment costs
No matter what car you buy, little surprises can happen. If you’d rather not get caught out, wrapping all your car expenses into a novated lease could be the way to go. With novated leasing, your employer will make regular repayments from your pre-tax salary, leaving you with one less thing to worry about and more money left over for other necessities.
Clear Lease build an accurate budget for your annual expenses with you and manage your accounts to ensure that all your bills and expenses are paid on time every time. Your employer makes the repayment to Clear Lease from your pre tax income, we then send the loan repayment off to your lender and hold the surplus funds allocated for your vehicle expenses ready for when an account is due.
First and foremost the biggest benefit to an employer is reducing the risk of owning a fleet. If you’ve ever managed your own fleet you know what a nightmare it can be, especially staff fluctuation and turnover. You are responsible to pay for all of the upkeep, insurance, maintenance and loan repayments. By offering Novated Leasing to your staff you can still have a company fleet but have the vehicles off your balance sheet and the risk mitigated. This will also help with reporting and lending covenants. You can also negotiate with your staff to brand the vehicles with your business.
Secondly, Novated Leasing makes your organisation more attractive to employees. By giving your employees access to their pre-tax salary to pay for their vehicle, they’ll secure significant savings on income tax – and you’ll become an employer of choice. The real benefits are a great goodwill boost, which results in loyalty and positivity. It’s a great way to sweeten employment packages to attract the best talent.
The best part is you only have a tiny part to play – we do all the legwork. We’ll look after the setup and administration of your employees’ leases, minimising the burden on your payroll team. Novated leasing is possible in most industry sectors, however, the legislation and entitlements may vary – so talk to us.
While it really is the employees using part of their salary for the car, they will appreciate just having this opportunity. Be sure to get in touch and we’ll walk you through all the important details for salary packaging a car, including information onFringe Benefits Tax (FBT).
So is novated leasing a car worth it?
Yep, we think salary packaging a car is definitely worth it! You’ve seen the huge range of benefits.
If you’re going to use salary packaging, then a novated lease is the best leasing type. A novated lease is flexible – it allows you to choose between fully maintained or non maintained options. Plus, you have the option to either buy the car at the end of your lease (by paying out the balloon payment) or moving on to a new one. You can even transfer your lease if you change jobs.
On top of this, with a novated lease you don’t have to worry about keeping up with unexpected payments, as the leasing plan can cover an extensive range of costs, including servicing, roadside assistance, fuel and insurance premiums. For a lot of people, using a novated lease is the most accessible and easy way to be able to use or purchase a new car.
So if you’re looking for salary package car scheme, talk to the team at Clear Lease.
What is a Salary Sacrifice Car Scheme?
A novated lease is a type of salary sacrifice scheme, including anything from annual gym passes, flight club memberships, healthcare and vehicles, like what Clear Lease offers. The reason salary packaging is such an attractive proposition is the regular repayments are taken from your pre-tax income, reducing your taxable income and saving you money.
Leasing terms & Salary Sacrifice
A novated lease involves paying car repayments through salary sacrificing from your pre-tax salary. The majority of people opt for a fully maintained lease, meaning it includes all of the operational and maintenance costs like fuel, rego, insurance, servicing and road side assistance as a part of the repayment. Bundling up these vehicle expenses into your novated contract is one of the best ways to reduce your taxable income. You can also have comfort knowing that everything is covered in one easy repayment your employer takes care of in your usual payroll cycle.
A non-maintained lease is also an option. However, this means that only the payment for the car would come out of your pre-tax salary, everything else would have to be paid for separately via your post-tax earnings and those expenses are your responsibility to pay. At the end of the day, the choice is yours and Clear Lease can talk you through all your options to help find something to suit your budget.
After the novated lease period finishes, the employee has the option of either buying the car (by paying the residual amount outlined by the ATO). Alternatively, we can refinance the residual into a standard car loan and you will then own the vehicle, or we can arrange to refinance the balloon and continue your notated lease over a new contract. Most often our clients opt to trade their car in, pay out the residual and purchase a newer model. But you do you!