If you’re employed and earning a regular wage, then salary sacrificing is a popular option to help you get into a new car. For many employees this can be a convenient option to help provide accessibility to the new car market, while also potentially affording tax breaks as well.
Of course this will vary from person to person, and you should always seek individual personal advice, but let us take a look more broadly at some of the general benefits associated with a salary sacrifice car loan.
Isn’t this the same as a novated lease?
If this was the first thought that went running through your head, then yes, you’re absolutely correct. A salary sacrifice car loan is identical to a novated lease, it is merely an alternative name for the same finance product.
The mechanics of this product works as follows. An employee forgoes part of their pre-tax salary to make repayments on the car and cover running costs. Their employer is the one who collects the amount sacrificed from the employee’s salary, in turn handling the administrative and financial side with the financier.
How does salary sacrificing benefit me?
Let’s first consider this from the perspective of an employee. If you apply for a normal car loan your repayments would be made after tax has been deducted from your salary. When you use a salary sacrifice car loan, the payments made by the employer are done before any tax has been withheld. The significance of this is that it means you can potentially reduce your taxable income and also extend your earnings further.
If you are an employer, then a salary sacrifice car loan can be used as a lucrative incentive to draw new staff to your business. On top of this you may also be eligible for certain tax benefits. For example, it may be used to reduce your payroll tax liabilities. You can also offset the liability of any fringe benefits tax to your employee so that you do not become liable for this payment. From a GST perspective, you may be able to claim GST credits and improve your cash flow, since it is the financier who purchases the vehicle and leases it accordingly.
Above all else…
These type of arrangements can be particularly complex for employees to understand if they are unfamiliar with the notion of a salary sacrifice car loan. Some employees may even think that this vehicle is then restricted to business use, or while working for their current employer, when this is not the case.
Should you switch jobs, the novated lease may be brought to your new employer if they are willing to act as a party to the contract. The car belongs to you. Do remember however, this is just a general guide and it is recommended that you speak with an expert to understand your own personal financial circumstances.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.