Salary sacrifice car finance is an excellent option for many people. It is a three-way agreement between you, your employer and a fleet or novated lease provider.
The scheme reduces taxable income and bundles vehicle costs, including purchase price, finance, fuel, servicing, tyres and insurance, into one easy regular payment. It also gives you access to acquisition fleet discounts. For more novated lease vs salary sacrifice finance options, check this out.
Cost-effectiveness
A novated lease is often cheaper than taking out a car loan. It is because you only pay for the vehicle portion of your monthly repayments. The remaining part of your repayments are taken from your pre-tax salary.
A novated lease is an ideal option for employees who want to get a new car without paying the total price upfront. It can also help save you money on your taxes, primarily if you work for a non-profit organisation. It is flexible and not tied to a specific job, so you can take the car when you change jobs.
Tax-effectiveness
Car salary sacrifice is one of many workplace schemes that offer employees tax benefits. The arrangement allows employees to bundle not only the purchase price of their car but also running costs such as registration, insurance and services into a single payment deducted from pre-tax wages. It means that, when compared to regular car finance, there are substantial tax savings.
Other salary sacrifice benefits include generous pension contributions, childcare vouchers and cycle-to-work schemes. These arrangements reduce employees’ taxable income, meaning they pay less in income tax and national insurance contributions.
Employees can also make their novated lease payments using post-tax wages, known as the Employee Contribution Method (ECM). It helps to mitigate FBT liability and improve the overall tax efficiency of the arrangement. However, if an employee changes employers during the lease term, they’ll have to continue to make payments from their post-tax salary. It may affect any tax benefits they’ve gained from the scheme.
Flexibility
Unlike car loans or chattel mortgage car finance, novated leases do not affect an employee’s taxable income. It means they can afford a vehicle they’d otherwise not be able to afford. It is one of the biggest reasons why novated leasing can be an ideal option for employees.
A novated lease can include both the purchase price of the vehicle and its running costs in a single payment, which can help reduce overall monthly payments for employees. It can also offer more flexibility by bundling on-road expenses like fuel, servicing, tyres and insurance into a single monthly payment.
The new leasing provider will handle the financing and administration of the arrangement, and most employers offer this service as part of their salary packaging benefits. Employees can also keep the novated lease if they change jobs, as it is not considered an asset or liability for the employer. However, the novated lease will still be a debt the employee owes, so it’s essential to understand this before choosing this option. For more novated lease vs salary sacrifice finance options, check this out.
Convenience
A novated lease is a three-way agreement between a finance company, employer and employee. It involves entering into a lease agreement with the finance provider, as well as arranging a salary sacrifice arrangement with your employer to cover repayments. These payments are made out of your pre-tax salary. In some cases, you may be able to take the car with you if you change jobs.
Novated leases offer many benefits to employees, including tax savings and the convenience of all-inclusive motoring. These leasing companies can bundle all vehicle running costs into the fixed monthly lease payment, which makes it easy to keep track of your budget. In addition, they can provide a fuel card and service your vehicle, as well as take care of the registration and insurance. They can even help you choose an electric or hybrid car to reduce your carbon footprint.