Novated Lease Calculator
Benefits of a Novated Lease
If you’re fortunate enough to work for an employer that offers salary packaging, you may find the idea of a novated lease appealing. Your employer makes the repayments for your new car using your pre-tax income earned. You have the option of choosing a car that suits you best, in the style and colour you prefer. You also have the responsibility of maintenance and care for the car.
When you leave that company and begin work with a new company, you’re able to take the car with you. It pays to ask your new employer whether the same salary packaging option will apply. This way your existing novated lease arrangement can be continued as part of your regular salary.
There are also some benefits for employers who offer employees this type of salary packaging arrangement. These include the ability to give employees a more attractive salary package, at the same time as reducing other costs associated with paying staff. These include reduced Payroll Tax and lower, or preferential WorkCover premiums.
An employer also doesn’t face the risk of being left with too many company cars if that employee leaves the company, as the car will go with that employee. The administration time, cost and resulting paperwork associated with maintaining company cars is also greatly diminished by using a novated lease.
Tax Benefits and Implications
When you think about applying for a personal loan through a bank for a new car, you should be thinking about how much of your take-home income you can afford to pay on repayments. By comparison, a novated lease is paid using your pre-taxed income. This reduces your taxable income a little, so you pay less tax on your earnings overall.
However, while the amount of income tax paid might be a little lower, there is a Fringe Benefits Tax to be paid on the amount of the benefit your employer pays for your novated lease. Talk to a tax agent or accountant about ways to reduce the amount of Fringe Benefits Tax payable, as there are options available for keeping this to a minimum. For the moment, it’s possible that people who travel more kilometres may pay less Fringe Benefits Tax. Unfortunately, by 2014, this may no longer apply.
Always double check with your employer how your novated lease is packaged. Some employers may choose a Non-Maintained Novated Lease. This is where only the finance portion is paid for out of pre-tax income. Other employers will choose a Fully Maintained Novated Lease. It’s important to understand the distinction.
Fully Maintained Novated Lease
A Fully Maintained Novated Lease is when your employer agrees to make the payments on your new car lease, as well as paying for the running costs, fuel, maintenance, repairs, servicing, insurance and registration. All of these costs are taken out of the employee’s pre-taxed income, reducing the total taxable income amount payable.
In this type of packaging, if the employee leaves the company, the entire responsibility for payment and costs fall to the employee. The employer no longer retains any responsibility for that car. If the employee finds work at a new company offering a similar salary packaging agreement, this can be taken over by the new employer. However, if this isn’t the case, the employee retains responsibility for those repayments and costs.
Non-Maintained Novated Lease
By comparison, a Non-Maintained Novated Lease is where the employer only agrees to make the finance payments for the lease. All operating costs, running costs, and other associated expenses are the responsibility of the employee, and will be paid using after-tax dollars.
As only the finance payments are packaged, this type of Novated Lease can be portable – meaning you can take it with you to your next job, as long as the new company offers this type of salary packaging. If your new employer doesn’t offer this packaging, those repayments become your responsibility to maintain.
Why Get a Novated Lease?
Anyone who regularly spends time out on the road, or who travels plenty of kilometres every year can benefit from buying a car using a Novated Lease. This allows you the option of choosing a car that suits you and your needs, rather than being stuck in a company car that may not be as comfortable.
It also removes the need to apply for a personal loan through a bank, as payments for the car are paid directly by your employer. For employees with short employment history, this can be the ideal way to qualify for an updated car without requiring the necessary paperwork to qualify for a bank loan.
This is primarily because the finance agreement is drawn up between your employer and the finance company. Your employer makes the repayments, but the funds to make those payments come from pre-tax income you’ve earned by working at that company.
Calculating How Much You Can Spend
It seems cool that you can rush out and get any car you want based on your employer deducting the payment amounts directly from your salary before you’re taxed on it. This tempts people to buy cars that may be slightly more expensive than they would normally consider.
However, keep in mind that this money does still come out of your salary. The repayments made on your Novated Lease reduce the amount of take-home pay you receive. Obviously, you will still have other living expenses that need to be made from that income amount.
Ideally, you should use a Novated Lease Calculator to check how much each repayment will be. This amount will be deducted from your Gross Salary to make the payments on your behalf. Your tax will be calculated, and the remaining amount will be paid to you as your take-home pay. Always ensure you’ve done the calculations first before you choose the car you want.
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