One of the most compelling reasons to consider a novated lease is the potential tax savings. But how exactly does it work, and how much could you realistically save?
The Basics of Salary Packaging
A novated lease allows you to pay for your car and its running costs using a combination of pre-tax and post-tax salary. By reducing your taxable income, you effectively pay less income tax overall.
Pre-Tax vs Post-Tax Deductions
With a novated lease, a portion of your car costs comes from your pre-tax salary. This reduces your taxable income before the ATO calculates how much tax you owe.
For example, if you earn $85,000 per year and salary package $15,000 towards your car, you're only taxed on $70,000. At the 32.5% marginal tax rate, this could save you thousands each year.
Running Costs Are Included
It's not just the lease payments that can be salary packaged. Your novated lease can also include:
Fuel
Registration
Insurance
Servicing and maintenance
Tyres
Roadside assistance
All these costs bundled together and deducted from your pre-tax salary maximise your tax efficiency.
The Employee Contribution Method (ECM)
To further optimise your novated lease, the Employee Contribution Method can be used to reduce or eliminate any FBT liability on non-exempt vehicles. This involves making post-tax contributions that offset the taxable value of the fringe benefit.
Calculate Your Savings
Every situation is different. Your actual savings depend on your income, the vehicle you choose, and how many kilometres you drive. Use our online calculator to get a personalised estimate, or speak with our team for a detailed breakdown.