So you’ve heard that your employer is offering you a novated lease as part of your salary. Perhaps you’ve also heard some of the buzz about how novated leases involving electric vehicles (EVs) don’t count as fringe benefits for tax purposes. If you’re feeling confused, you’re not alone, especially if you’re new to the world of novated leases.
Now, if you’ve ever bought a car in the past and needed to get a loan to finance it (and I don’t mean a loan from Mum and Dad or anything unofficial like that), then the only people involved in the loan were you and the credit company. However, with a novated lease, your employer is part of the deal, making this a three-way situation. There’s you, there’s your employee and there’s the financial company (such as us here at FinCar).
Let’s say that the company wants to give you a raise (well done – you probably deserve it). However, you know that if you get a bit more in your take-home taxable pay, you’ll move into the next tax bracket, so a good chunk of the extra dosh will go walking out the door to the tax collectors. The solution can be to give you a novated lease, where the payments for the new car come out before your pay becomes your pay (i.e. before tax), and you get to drive the car. The extra good news is that the price tag on said new car can be quite a bit lower than what you’d have to pay if you were to get out a car loan on your own rather than entering into a novated lease, as your company could get a fleet discount on the car in question.
You might think that this is just like having a company car, so you may wonder what the fuss is all about and why a novated lease is necessary. However, it’s quite different from having a company car or getting a car allowance. First of all, you can use the car for business or for personal use. So there’s no faffing around with logbooks needed – something we were all happy to leave behind when we finally got off our P-plates. I think anybody who’s had to drive a company car has had that moment of thinking “Oh bother, I forgot to enter the mileage at the end of the last trip.”
The other good thing is that you can get to choose what sort of vehicle is part of your salary sacrifice or novated lease. This isn’t always the case with a company car, so if you have a large family (and you’re allowed to use the company car for personal reasons) but all the cars that your employer owns are little hatchbacks, this can be a bit of a nuisance and not really a benefit after all. With a novated lease, it’s kind of like getting a car loan but with your employer picking up the tab for the vehicle instead of giving you a raise.
However, don’t think you’ve escaped the tax collector completely. Depending on the sort of car that’s involved in the lease, you could pay fringe benefit tax (FBT). This also gets taken out of your pay packet before it gets to you, so you don’t have to set it up (unless you’re the employer; talk to us if you’re not sure how to do this). Novated leases, aka salary sacrifices, aren’t the only thing that counts as a fringe benefit – entertainment and gym memberships can also count.
On the other hand, if the car that’s part of the salary sacrifice deal is an electric vehicle (EV), it doesn’t count for FBT purposes. This is part of the push to reduce carbon emissions and/or pollution by encouraging the uptake of EVs. At the moment, both 100% battery EVs and plug-in hybrid EVs (PHEVs) are exempt from FBT, but this is about to change. After 1 April 2025, PHEVs will count towards FBT, so if you are interested in setting up a novated lease with one of these, get in quick!
If you’ve never been part of a salary sacrifice package before, it can be difficult to understand. However, we’re here to help you along the journey, from the boring bits through to the fun stuff like actually choosing the new car that’s part of your novated lease.