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How does novated lease cars help cut down taxes and save money?

novated lease cars

 

Always wanted to buy a car but afraid of bank loans? Don’t worry, Novated lease cars will help you cut down taxes and turn your dream of owning a car into a reality. Novated lease cars will not only help you in some major savings but also give you the luxury of owning a brand new car or even a novated used car. 

 

Instead of going to a bank and taking a loan, which involves a lot of long term implications such as taking out a specific amount every month out of all your expenses. Mover over bank loans is not very flexible in terms of installments. Unlike novated lease cars, bank loans do not cut down the taxes.

 

What exactly is the novated lease car?

Novated lease cars simply a cost-effective arrangement whereby your salary is deducted through a combination of pre-tax and post-tax for your car lease and car ruining costs. This is an agreement between three parties which include employee, employer, and a leasing company. It is not necessary to buy a brand new car, you can also avail novated car lease on used cars of up to 7 years.

 

How is novated lease car cost-effective?

Novated lease car is cost-effective since it not only covers the cost of buying a car but also covers the after charges of using a car. Sounds too good to be true? Wait there is more. Novated lease cars are approved by the Australian Tax Office. Considering the benefits, the Australian Taxation Office considers it a great perk and made FBT applicable on novated leasing.

 

Fringe Benefits Tax (FBT) and Employee Contribution Method (ECM):

The great news here is that instead of taxes being deducted from your salary, your employer pays the FBT on the perks and benefits that you enjoy through novated lease cars. The Employee Contribution Method helps in minimizing any cost that might be coming your way through FBT. Rather than having all your charges being cut out of pretax salary, ECM divides you novated lease car costs in two parts: pretax and post-tax. Thus effectively reducing taxes and helping you in saving money.

 

Novated Lease Car vs Bank loan:

Novated lease car allows saving GST on the cost of the car and on the cost of petrol, maintenance and service cost. The method of payment is quite easy. The amount of novated lease cars is deducted directly from the salary. Since the taxable income is cut down, you get to save tax money on every pay cycle. You can avail of a novated lease on new or old cars. 

 

Leases can be transferred to a new employer. Bank Loans do not include the costs of running the car, maintenance or insurance, etc. It is cost-effective neither help in any savings. The amount of GST is deducted on the purchasing price of the car.  GST is also deducted from all the cost and expenses of owning a car.

 

At Reaching the End of Current Lease:

The approaching end of a novated lease is an opportunity to get maximum optimization from the savings and make the best of it. Through the Novated lease, a person is only providing two-thirds of the amount of getting a new or used car. The third part is the residual value that is submitted at the end of the term. This arrangement invariably makes it easier in comparison to other methods where sometimes you are required to show your asset for the reliability or make 100% payment.

 

Furthermore, at the end of the term, you are capable of selling your previous novated lease car and buying a new one. The money you get from it will be yours and that too tax-free. But a person needs to be well informed of the car choices they are making and keep an eye on the future value of that car. It may d=increase or decrease depending on a number of variables. 

 

Easy On the Go:

After choosing the novated lease car plan that suits you, you can take the help of the novated lease car calculator to determine the cost evaluations. Once all the agreements are arranged, it runs smoothly like a well-oiled machine. The charges deducted on their own from your company end so there is not much left to worry about. 

 

Initially, it is natural to have a lot of queries and apprehensions in regards to how it works and ‘is novated lease car worth it?’ Then as gradually you warm up to the idea of a novated lease car, your focus shifts more towards feasibility you tend to not concentrate on the amount of money saved rather you pay attention the amount of money you get from your salary.

 

All in all novated lease cars are the way forward. This approach is gaining popularity quickly in Australia. There are companies that are ready to help you every step of the way. Even novated lease car calculators are available online which helps you understand all the cost and charges involved and the amount saved.

 

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