When it comes to buying and running a car, Goods and Services Tax (GST) is one of those hidden costs that add up quickly. But did you know a novated lease can significantly reduce, or even eliminate, GST on your car purchase and its ongoing expenses? In this in-depth guide, we’ll explain exactly how GST works with novated leasing and how it can help you save thousands.
How Does GST Work on Car Purchases?
When you buy a car outright, you’re required to pay 10% GST on the purchase price. For a $40,000 car, that’s $4,000 in tax. But under a novated lease, your employer finances the vehicle on your behalf and claims the GST input tax credit, passing the savings on to you.
No GST on Purchase Price
The GST on your car is claimed by your employer and deducted from the cost, reducing the overall amount you pay.
Example:
Standard Purchase: $40,000 + $4,000 GST = $44,000
Novated Lease: $40,000 (GST claimed by employer)
Your Saving: $4,000 upfront
GST on Running Costs: How You Save
Novated leases don’t just save you GST on the car itself – they also apply to many of the vehicle’s running costs.
Fuel or EV Charging: Pay no GST when you use a fuel card included in your lease.
Maintenance & Servicing: GST on service invoices is claimed by your employer.
Tyres and Repairs: Any GST charged for replacement parts is covered.
Comprehensive Insurance: Premiums can also include GST savings.
Registration and CTP: Often GST-free under lease agreements.
How It Works: Your employer pays for these expenses and claims the GST credit, reducing the total amount included in your pre-tax salary deductions.
Example:
Annual running costs: $10,000 (including GST)
Employer claims GST credit: $1,000
Your cost: $9,000 (less tax)
Calculate your savings
Choose the type of car you want and see how much you will save.
GST and Fringe Benefits Tax (FBT)
While you save on GST, there is an FBT component to consider because a novated lease is considered a fringe benefit. The good news? FBT is calculated on the GST-exclusive cost of your vehicle, lowering the base used for the tax calculation.
Tip: If you opt for an electric vehicle (EV) under the government’s FBT exemption scheme, you may avoid FBT altogether while still enjoying GST savings.
Benefits of GST Savings with a Novated Lease
Upfront Savings: No GST on car purchase price
Ongoing Savings: Reduced GST on all running costs
Simplified Budgeting: All costs bundled into one pre-tax payment
Tax Efficiency: Additional income tax savings as payments are made from your gross salary
Novated Lease GST Example: What You Save
Cost Item | Outright Purchase | Novated Lease |
Vehicle Price | $40,000 + $4,000 GST | $40,000 |
Annual Running Costs | $10,000 (inc GST) | $9,000 |
Total Year 1 Cost | $54,000 | $49,000 |
Year 1 Saving | - | $5,000 |
Savings will vary based on income, vehicle choice, and driving habits.
Are All Cars Eligible for GST Savings?
Most new and eligible used cars qualify for GST credits under a novated lease, but there are limits for high-value luxury vehicles. Ask your novated lease provider for guidance if your car exceeds the luxury car tax threshold.
Final Thoughts: GST and Your Novated Lease
A novated lease offers one of the most tax-effective ways to buy and run a car in Australia. By removing GST from both the purchase price and running costs, you could save thousands while enjoying the convenience of a single bundled payment.
If you’re considering a novated lease, make sure you understand all the GST benefits to maximise your savings.
Ready to save on GST and simplify your car costs? Talk to Easi today about how a novated lease can work for you.
