Understanding Novated Lease

Novated lease is a common leasing practice in Australia

. Most employees opt for novated leases to buy a car.

So what is novated lease? It can be defined as a simple and hassle free method by which employees can lease the car of their choice, on their terms and pay for it with their pre-tax salary. Under novated leases, the car running costs (GST excluded) and the monthly lease payments are combined into single monthly payments. These payments are deducted from the employees pre-tax salary. One of the main benefits of novated leases is that they help reduce your tax burden. This is one of the main reasons that novated leases are becoming the favoured means to buy cars in Australia.

More and more people are eager to learn what novated lease is and how it will benefit them. Novated leases involve a three way arrangement between you, your employer and the financier. The monthly payments are sent to your employer who pays them by deducting the amount from your pre-tax salary. This way your tax is reduced and your disposable income increases.

The other added advantage is that you are not required to pay any GST on your vehicle expenses or on the purchase price, courtesy your employers tax status. As the vehicles operating costs are included in the novated leases, budgeting also becomes easier.

By including your vehicles operating costs in your novated vehicle lease, you wont have unexpected expenses popping up throughout the year and as a result, youll be able to budget more effectively. The requirements for ongoing payments like fuel, registration, maintenance are also eliminated as all these costs are consolidated in the novated lease payments.

Finally novated leases enable you to buy your choice of vehicle. So there is no restraint or restrictions on the type of vehicle you can own. With so many advantages namely on the income, employees are ready to sacrifice salary for a car. The pre-tax salary sacrifice for a car is in fact a boon for the employees.

by: Emma Morgan

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