Is Novated Lease Worth It in 2020?
What is a Novated Lease?
A novated lease is a salary packaging arrangement whereby you pay for a car and all of the associated running costs out of a combination of pre-tax and post-tax salary. Your employer makes the deduction out of each pay and sends it to your leasing company to manage the expenses on your behalf.
There’s a common misconception that novated lease is only worth it for high flyers, but that’s not true. It’s a form of financing that can suit a wide range of car buyers and users – regardless of how much money you’re earning. Even on a modest salary, reducing your taxable income equals paying less tax.
Here are a few benefits of novated lease and how it can work for you in 2020.
Pay Less Tax, Always in Fashion
As the saying goes, there are two certainties in life – death and taxes. However, if there was a way to pay less, many of us would certainly jump at the opportunity. Paying the least amount of tax possible is never going to go out of fashion. And this is one of the best reasons why novated lease is worth it – it’s both cost and tax-effective, meaning more cash in your hand to spend.
A novated car lease is considered the last decent tax break for employees. Under the agreement, the employer makes the payments for the car and all its running costs directly from the employee’s payroll. This significantly reduces the employee’s taxable income at no cost to the employer.
No Minimum Kilometre Requirements
Another myth about novated leasing is you have to drive a minimum number of kilometres each year. This used to be the case, but since the changes to the FBT laws in 2011, it’s no longer required to get the best savings. Now, the FBT liability is no longer determined by the number of kilometres travelled in the FBT year. Regardless of whether you drive 10,000 km or 50,000 km, the flat 20% FBT liability rate remains. In fact, driving lower kilometres on your novated lease may have a positive impact when you come to trade your car in at the end of your lease!
Wages Growth is Low
If you don’t see a pay rise on the horizon, there are other ways you can still save yourself money. In the last 12 months, the wage growth in Australia has slowed down, so it’s time to take matters into your own hands. Instead of asking for a pay rise (or hopelessly waiting until the market takes a more positive turn), opt for a novated lease to reap the financial rewards.
Cars are expensive, but necessary part of our life. When the chances of a pay rise don’t seem likely in the foreseeable future, getting the funds together to purchase a new or used vehicle can be difficult – or even impossible. A novated lease can provide the perfect solution, even if wages are at an all-time low. No deposit is required and substantial discounts on the purchase price make it a practical option for low-income earners or anyone still hanging for a pay rise.
Salary Packaging Super Has Reduced
Salary packaging part of your income into superannuation is a smart way to set yourself up for retirement. This tax-effective strategy is best for income earners of more than $37,000 a year. However, with recent caps placed on the amount of super you can salary package, it’s worthwhile looking at novated leasing, especially if you’re looking at retiring in the next few years. A novated lease could be a great way to get the car you have always wanted for your retirement.
You’ll Get a Fuel Card
A novated lease arrangement also comes with the perks of a fuel card. One of the best reasons why novated lease is worth it, aside from the fantastic tax benefits, is that it provides a convenient way of organising all your car-related expenses at once. Knowing in advance that these additional costs are taken care of proves a sense of relief and can take the financial pressure off forking out the funds for everyday expenses, like fuel.
Another benefit of having a fuel card as part of your novated lease is you’re able to track your fuel usage over the year. This is great for both employees and employers and can be used to reduce expenditure and further save money.
A novated lease arrangement also includes regular servicing and maintenance, automatic registration renewal, insurance and replacement tyres.
For more information on the benefits of novated lease and whether it’s right for you in 2020, speak to one of our staff to see how we can help you!