Make Significant Tax Savings by Salary Sacrificing Your Car

A salary sacrifice car or novated lease is one of the cost-effective arrangements in Australia through which an employee leases a car from their employer. It involves the employee, employer, and leasing company.

You can lease a car, whether new, old, or the current vehicle from the leasing company while your employer agrees to pay for the lease amount on your behalf which is deducted from your pre-tax income.

The employer also agrees to pay for the car running and maintenance costs like fuel, insurance, car washes, and servicing.

This arrangement of a novated lease can lower your tax liability by almost thousands of dollars or even more as it uses your pre-tax income and allows you to make savings on your taxable income.

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This lease is often known as “balloon payment” since the final total exceeds your initial expectations.

While a novated lease can make a significant reduction in your taxes, there are other benefits too:

  • With a novated lease, you are exempted from paying the GST on your car or the running costs.
  • You get access to the wholesale price to get a new car for less money and that too on lease.
  • Having said that, you can also salary sacrifice a second-hand car or you can bring your existing car.

When comparing the conventional approach of getting a car loan to buy a car with a novated lease, the latter is advantageous because your loan would be fully repaid with the money you get in your bank account each week after the tax is deducted.

A novated lease allows you to pay your lease through your salary but which is taxable.

What to consider before signing a novated lease?

Before you sign a novated lease with a leasing company, it is important to take the following things into account.

Your finances

Novated leases can save you money on taxes, but they can include extra expenses like maintenance and possible repairs. Make sure you have adequate cash on hand to pay for these costs.

Status of your job

Novated leases need the consent of both the employer and the employee and hence, this arrangement is available only to full-time employees.

Therefore, make sure your employment situation is secure and stable.

Your car needs

Salary sacrificing car could restrict your options, so make sure the car you want is both available through novated lease and suits your requirements.

Do your research on novated leasing to consider which one is right for you. Make use of novated lease for a new, old, or even your existing car, let your employer pay for the lease, get it deducted from your pre-tax income, and make savings on your tax bills.