A novated lease is a cost-effective and tax-effective way to buy and run a car, because the repayments and running costs come out of your pre-tax salary. (This is why it’s sometimes called ‘salary sacrifice’.)
You do not pay GST on the new car. That’s a massive up-front saving. On a $55,000 vehicle, for example, that’s a $5000 saving right there.
Maximum GST saving possible is $6191. That’s for the 2023-’24 financial year. This is based on the ATO’s ‘car limit’ for the current financial year, of $68,108. ($6191 is the GST component of $68,108 - ie, one-eleventh of the price.) More info on this page at the ATO.
I also laid this out on this YouTube ‘short’.
How a novated lease works
Your novated lease is a simple, three-way agreement between you, your employer and a leasing company.
Your role
You agree to have the repayments deducted (sacrificed) out of your salary, in exchange for the use of the vehicle. This can include all the running costs, such as fuel, maintenance, insurance, servicing and registration. The vehicle does not have to be for business use. It can be 100 per cent personal use.
Your employer’s role
Your employer completes the paperwork and makes a regular, automated payroll deduction from your salary. This is paid directly to the lender to finance your car. That’s all your employer needs to do.
The leasing company’s role
The leasing company sources the vehicle GST-free for you, and does all the administrative ‘heavy lifting’ - establishing the lease contract and other compliance details.
After everyone signs, your novated lease is up and running and you are funding the vehicle using, in part, funds you otherwise would have paid in income tax.