The design of an effective salary package, which often includes a car, can have attractive tax and accounting benefits for both employer and employee. As an employee, you may find that a Novated Lease is the best way to include the vehicle of your choice in your company package, helping you realise more from your salary and the car you drive.
Why take a Novated Lease?
Many people use a Novated Lease as a cost effective means of financing a vehicle.
You choose the car you want and then enter into a Full Novation Agreement under which your employer assumes all lease obligations and pays the lease rentals, maintenance and operating costs on your behalf. Your employer also pays GST on the lease rentals, and provided your employer can claim an Input Tax Credit (ITC), the amount of the GST is passed on to you.
If you leave the company before the lease expires, the Novation Agreement lapses, your employer’s responsibility to make lease rental payments ceases and this responsibility becomes yours. You are then liable for the lease rental payments including GST and maintenance or operating costs if they have been included.
Case Study - Comparison
The biggest advantage for employees comes in the form of tax savings through ‘salary sacrifice’ compared to financing and running a vehicle from their net (after tax) salary.
As demonstrated in the following table, vehicle costs are deducted out of a combination of your pre and post tax salary, using the Employee Contribution Method.
| Salary Components | Non-Packaged Vehicle Cost |
Packaged Novated Lease |
|---|---|---|
| Gross taxable income | $55,000 | $55,000 |
| Salary sacrifice vehicle costs | $0 | $10,839 |
| FBT | $0 | $0 |
| GST on Employee Contribution | $0 | $333 |
| Add GST Input Tax Credits | $0 | $1,318 |
| Net taxable salary | $55,000 | $43,176 |
| Tax payable (inc. Medicare) | $12,675 | $8,950 |
| After tax salary | $42,325 | $34,225 |
| Vehicle costs | $15,570 | $0 |
| Employee Contribution | $0 | $3,658 |
| Annual net salary | $26,755 | $30,568 |
| Net benefit from packaging | $0 | $3,813 |
Disclaimer
- 1. Amounts, rates and fees quoted apply at the date of enquiry and are subject to change.
- 2. Actual repayment amounts may vary depending on the interest rate offered determined by the customer profile at time of application.
- 3. All applications for credit are subject to normal lending and credit criteria.
- 4. The figures provided do not allow for any deposit requirements, government or statutory charges or GST on the finance contract (where applicable).
The employee's 'take home' salary would be $3,813 higher than if they had borrowed to buy or lease a vehicle from their net salary. In addition to tax savings, our purchasing power delivers further savings for your employees on vehicle purchase and running costs.
Need more information?
If you would like to learn more about a Novated Lease, please call our Customer Service Centre on 1300 887 967 or submit your question using our enquiry form and a member of the Madison Team will contact you to answer any questions.
You can also use our Novated Lease Calculator to estimate your tax savings or apply online for a Novated Lease.
Once you've heard what we can offer in terms of our range of competitive products and specific contract details, you'll have the confidence to know you've made the right decision.
