Many individuals become confused between car salary sacrifice and novated lease arrangements since both involve making payments out of pre-tax salary to reduce taxable income. Learn more about novated lease vs salary sacrifice.
There are notable distinctions between them; car salary sacrifice is an effective means of getting into a new vehicle for both employees and employers, providing key advantages.
1. Tax savings
Novated leases offer many benefits to their users, including reduced tax bills; payments made under such lease agreements come directly out of pre-tax income and then reduce taxable income accordingly.
Tax benefits of car sharing vary, but for some employees, this could amount to savings of several thousands each year in tax payments.
Novated leasing not only saves on GST and tax savings but can also offer better access to new cars at reduced prices. Novated leasing companies buy them in bulk from manufacturers at substantial discounts, which they then pass on to their customers, resulting in reduced lease payments for customers.
2. Flexibility
Novated leasing is a three-party financing agreement that involves employers, employees, and a leasing company. Because payments for novated car leases come directly from an employee’s pre-tax salary, their taxable income can be significantly decreased compared to purchasing their vehicle outright or via cash/car loan.
Employees can save thousands on novated lease payments and access electric/hybrid cars more affordably through this arrangement, as novated leases usually include maintenance, insurance and road tax in one monthly payment.
Employers looking to attract and reward employees can use offering novated leases as employee benefits as a cost-neutral way of doing so – however, there may be risks and considerations that should be addressed; we cover these in our guide on offering novated leasing as an employee benefit.
3. Insurance
Novated leasing involves entering into a three-party agreement between yourself, your employer and a fleet provider or novated lease service company for your chosen vehicle. Novated leasing provides you with an alternative means to pay for it through pre-tax income while consolidating all expenses into one simple monthly payment plan.
A novated lease car service company handles all the paperwork for you and works with your employer to deduct your payments directly from your salary. They may also negotiate fleet discounts that help reduce car costs.
Novated leasing is an excellent way for private buyers to acquire brand-new vehicles without incurring GST – saving approximately 10% in this way. Plus, should your job change and take your car with you, repayments can continue using after-tax money!
4. No deposit
Novated lease cars provide employees with a better alternative than many corporate car schemes that require upfront payments or put personal credit at risk by enabling them to secure brand-new vehicles without needing deposits for initial purchases or repairs. Payment includes road tax, insurance and maintenance.
Companies can now offer key staff a zero-cost incentive that will not only help retain them but also reduce the company’s carbon footprint. Furthermore, this strategy makes EVs more accessible as they have a very low BIK tax rate of only 2% until 2025 and then gradually increase by just 1% after that.
Many employers believe novated leasing will impose an administrative burden, but in truth, the provider takes care of all paperwork for you and typically negotiates bulk buy discounts for both the vehicle price and running costs.
5. Flexibility
Novated leasing can be an excellent way to reward and retain employees. As an employee fringe benefit, novated leases allow tax-free vehicle payments and expenses.
Employees are free to select any car they desire for personal and work purposes – not only those related to driving for work. Furthermore, they can use input tax credits by using GST-free monthly payments to cover running costs like fuel, registration, insurance and maintenance of the car. Learn more about novated lease vs salary sacrifice.
Salary packaging might seem complicated, but with Easifleet as your Fleet Provider, it doesn’t have to be! They take care of all the paperwork and payments so you can focus on work and family while maximising take-home pay! Our company will save you from stress; all you have to do is relax and start focusing on your job.