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What is novated leasing?
A novated lease is an awesome way of salary packaging your next vehicle to gain a swag of benefits and income tax savings. A novated lease can be set up on a new or used car. Hell, we can even create one for your existing car, if it’s within 7 years of age and you still love the way it drives. At the end of the day, all you need to know is it’s a better income, better outcome.
But before you make any rash decisions, here’s everything you need to know about novated leasing so you can make the best choice regarding the second most important purchase you’ll make in life. After all, if you’re going to go into debt for it, you may as well make sure it’s clearly the best deal you could possibly drive.
Where do I get started?
Before you start looking for a new car, you’ve probably given some thought to your finances. More than likely you’re going to be looking at what you can afford. Will you be taking out a personal loan, or drawing down on your mortgage to pay for the new car? If these are some of the financial options on your radar, we have a better one. A novated lease is a great way to salary package your car into your pre-tax income. That way, you keep more of your salary and the taxman can take a hike. And by seeing the savings in advance, you may be able to consider buying that dream set of wheels, you thought was out of reach.
How does a novated lease work?
A novated lease is a three-way financial arrangement between you, your employer, and a lender that can last between one and five years. It’s designed to benefit you over the taxman to the tune of thousands on your vehicle’s purchase price and the way you pay the loan off because it comes out of your gross salary. Plus, it comes with some other great benefits that we’ll get to in a bit.
Who chooses the car?
In almost every instance, you make all the decisions. You choose which car manufacturer and model you desire. Whether you want to lease a new, used, or set up the novated lease on your existing vehicle, they’re all options in front of you. In the very rare instance, your employer wants a say in your purchase, we can help with that too to make sure at the end of the day – you’re the one that walks away happiest and with more money in your pocket.
Novated leasing lowers your taxes.
With a novated lease, most of your repayment costs are made from your gross income (before tax pay), so you’re more likely to pay less tax. That means more disposable income for your family holidays away, dinners out, or silly things you find on the late-night shopping channel – whatever floats your boat (car!). Salary isn’t the only area where you’ll save on taxes. Buy a new car through a novated lease and you don’t pay the GST.
The taxman strikes back.
Because the government aren’t mugs, they’ll try other ways to take your salary in the form of Fringe Benefits Tax (FBT). That’s defined as a tax on any benefits your employer provides you that aren’t salary or wages. Unfortunately, your lease payments falls under this tax. Yes, that can feel like they’re taking with one hand and giving back with the other, but we’ve got a plan to counteract that.
But you win in the end.
We can offset any FBT on your novated lease by setting up an Employee Contribution Method (ECM). Yes, it’s another acronym, but it’s a good one. And ECM makes some of your vehicle repayment come out after income tax. By using ECM, you reduce the taxable value of your car. Less tax value = less FBT payable. In most cases, you’ll pay zero FBT. But wait, there’s more…
The other benefits we mentioned.
Bye-bye bill shock.
If you’re like most other people, you only remember your car registration when the letter turns up giving you 30-days to get the funds together. Put bill shock in your rear-view mirror thanks to your novated lease because everything – all your running costs – are spread evenly and annually, within your payment set up. It also gives you the convenience of cashless motoring, all the way down to your fuel which is managed by a fuel card.
Running costs sorted.
So, whether you set up your novated lease repayment weekly (52 payments/year), fortnightly (26 payments/year), or monthly (you get the idea) …the payment includes:
Let’s estimate together.
But hold on, how does anyone know their car’s running costs a year in advance? It’s not rocket science. You know your routine and we’ve got the experience to help estimate your usage throughout the year. Together we can accurately estimate your vehicle’s annual fuel and running costs. And we can make adjustments to it at any stage if you’re changing your situation and driving more or less. The beauty of this system is, because this budget is spread over the course of your lease, it doesn’t fluctuate the amount of your repayments.
Get the GST of things.
If you decide on a new vehicle over used, there are even more benefits to a novated lease. For starters, you won’t pay GST on the purchase price. That could save you thousands in upfront costs. But the GST savings don’t stop there. Looking at your employer’s salary packaging policy, we could also save 10% GST on all your finance repayments and running costs. If your employers’ policy allows, your company may be able to treat your pride and joy as a company car for tax purposes allowing your employer to claim back the GST on your running costs and pass that saving on to you, no skin off their nose.
The Clear advantage.
With The Alliance Group and Dixon Insurance behind us, Clear Lease can provide you with a larger panel of lenders to choose from, as well as comprehensive and competitive insurance products. And with choice, comes better deals. As one of Australia’s leading novated leasing providers, Clear Lease can draw from a bigger pool and find the right lender prepared to best accept your application.
Is your advantage.
Clear Lease has the size and scope to drive a better price for the car you want. We’ll negotiate until the dealer is sick of seeing our names on their phone, all on your behalf and for your benefit.
At the end of the lease.
All good things come to an end, and that goes for novated leasing also. The government requires you to pay the balance of your loan as a lump sum payment, when your novated lease term is up. They base this lump sum payment on the Minimum Residual Value of your vehicle – a percentage of the money you paid to buy your vehicle in the first instance. But have no fear, we can help you with options that will suit whatever situation you’re in at the end of your novated lease.
End of lease options.
As your novated lease end of term is approaching, we can work with you to initiate one of the following:
By law, the Australian Tax Office (ATO) requires a percentage of the residual value of your vehicle based on the term of the loan, to be paid as a lump sum. For example, it you have a novated lease over 5 years’ worth $50,000 the minimum residual is 28.13%, which means your lump sum would be $14,065. For more info on residual payment requirements, see ATO. Hey, chin up! Clear Lease can help with that too, so you don’t have to lump anything. We can finance the residual again into another novated lease over a further term, or you can sell or trade in your car for an upgrade.
If you’re an employee wanting to squeeze more out of your salary, especially in a day and age where a pay rise is as rare as hen’s teeth, you’d be hard pressed to find a better move than a novated lease. Especially if your employer is already utilising them with other employees, it’s a no-brainer. And even if they’re asking you, what is novated leasing? You could be the genius that introduces them to one. With you paying less tax, they’ll make fewer contributions to the government too on your behalf. They’ll love that. Everybody wins.
A novated lease with Clear Lease makes the whole process of buying a car easier and more convenient. We can save you time searching for the right lender and setting up your loan, but we’re guns at sourcing you the right car – no need to spend hours trawling online or through newspapers. Our extensive knowledge of the market and leverage with dealerships gives you a distinct advantage in the negotiation phase and ensures you get the best deal on the purchase price of your new car. We even manage your paperwork to create a seamless experience from go to woe.
Our service doesn’t stop once you’re behind the wheel either because our after-sales service is second to none. We make sure you have access to all your paperwork and account information. We keep the lines of communication open always and we’re here to help with any enquiries you may have about your novated lease. And our job’s not done until everything’s clear, you’re getting the full picture, and you feel comfortable with where your salary package is at. Our reputation is built on loyal and repeat clientele and trusted relationships that aim to add value to your personal finances.
For years Novated leasing has been over complicated, over thought, and under-utilised. Not with Clear Lease on the case. We keep things simple, easy to understand, and less boring – more savings. Anything unavoidably complex like the government’s Minimum Residual Value – we can take care of the bones of it and leave you with only the easy-to-understand options you need to be aware of.