Navigating the world of car financing can be complex, especially when considering options like novated leases. But what exactly is a novated lease, and is it worth it? This blog post aims to demystify the concept, explain how it works, and weigh the pros and cons, particularly in the context of Australian tax and employment laws.  How Does a Novated Lease Work?  The process of setting up a novated lease involves several steps: 
  1. Choose a Car: The employee selects a car they wish to lease.
  2. Lease Agreement: A lease agreement is signed between the employee and a leasing company.
  3. Novation Agreement: The employer agrees to take on the lease payments as a salary sacrifice from the employee's pre-tax income.
  4. Bundled Costs: Typically, the lease includes all running costs such as maintenance, insurance, and registration, bundled into one monthly payment.
How Does a Novated Lease Work in Australia?  In Australia, novated leases are a popular option due to the country's specific tax advantages for salary packaging. The lease payments are deducted from the employee's gross salary, reducing the overall taxable income and leading to tax savings. Additionally, the Goods and Services Tax (GST) on the car purchase price can often be claimed back by the employer, which is then passed on as a saving to the employee.  Do You Own the Car After a Novated Lease?  At the end of the lease term, you have several options: 
  1. Purchase the Car: You can buy the car for its residual value.
  2. Extend the Lease: You may choose to extend the lease for a further term.
  3. Return the Car: Simply return the car to the leasing company and walk away.
How Much of a Novated Lease is Tax-Free?  The amount of tax savings depends on your income and the value of the lease payments. Using a novated lease calculator can provide a detailed estimate of your potential tax savings, helping you make an informed decision.  Is a Novated Lease Better Than Paying Cash?  This depends on your financial situation. While paying cash avoids interest and financing fees, a novated lease can offer significant tax benefits that might outweigh the costs associated with leasing. It's essential to compare both options and consider factors like cash flow, tax benefits, and your long-term financial goals.   How Does a Novated Lease Pay for Electricity?  For electric vehicles, some novated lease packages include provisions for electricity costs. This can be bundled into your monthly lease payments, making it even easier to manage the expenses associated with running an electric vehicle.   How Do I Ask My Employer for a Novated Lease?  To ask your employer for a novated lease, you should: 
  1. Research: Gather information on how novated leases work and the benefits they offer.
  2. Prepare: Have a proposal ready outlining how a novated lease can be beneficial to both you and the employer. CarBon Leasing can help you with this, in fact we can speak to your HR/Finance department on your behalf!
  3. Schedule a Meeting: Request a meeting with your HR or finance department to discuss the possibility. CarBon Leasing can request the meeting on your behalf, all you will have to do is provide us with the relevant information regarding your organisation.
Can I Transfer a Novated Lease Between Employers?  Yes, you can transfer a novated lease between employers, but it requires the new employer to agree to take over the lease payments. This process is known as re-novation and involves signing a new novation agreement with the new employer.  Is the Employer Liable for a Novated Lease?  The employer is responsible for making the lease payments on behalf of the employee as part of the salary packaging arrangement. However, the financial liability ultimately rests with the employee.  Can an Employer Claim GST on a Novated Lease?  Yes, employers can claim the GST on the lease payments and running costs associated with the novated lease, which can then be passed on as a saving to the employee.  Novated leases offer a compelling way to finance a vehicle, particularly for those looking to reduce their taxable income and streamline car-related expenses. While there are potential downsides it is always best to avoid unscrupulous providers. You can read our guide to avoiding dodgy novated providers here. The benefits—especially the tax savings—often make it a worthwhile consideration. Always consult with a financial advisor to understand how a novated lease fits into your specific financial situation and goals.  Try our online calculator and get a free quote!