Novated Leases are becoming a very popular way of including a car as part of your salary package to help reduce your taxable income.

You take out a standard Finance Lease on a vehicle of your choice. You then arrange for the Car Lease payments to be paid by your employer through a novation agreement which remains valid as long as you stay with the company.

The Car Lease payments and running costs for a car that is packaged for an employee for their private use is subject to FBT. This is calculated on a sliding scale depending on the value of the vehicle and annual kilometres travelled are then taken out of your pre-tax salary.

At the end of the Car Lease, the choice is there to turn over the vehicle into a new Car Lease, trade it in on a New Car Novated Lease or even purchase the vehicle through a third party.

As with any standard Finance Lease, the responsibility for the residual lies with the lessee and if at the end of the term, the market for used cars has taken a dive then it is you who must make up the difference to finalise the Finance Lease contract. But similarly, if there is a sudden demand for your current vehicle that you have acquired, and then decide to sell, you are not subject to either a property fringe benefit tax or tax on any profit made on the sale of the vehicle.

The main tax benefits for Novated Leases lie in the ability to reduce your pre-tax income. The majority of people that do fall into the bracket of having a vehicle packaged generally have some component of the salary in the 40 cents in the dollar, the second highest tax bracket but you can save money if you earn less.

The car component comes out pre-tax so it reduces your taxable income, so in the majority of cases for people who are middle management it will drop them back into that lower tax bracket. It can be a way of effectively avoiding bracket creep.

If you would like more information on any Car Loan, one of our Car Loan consultants can prepare you a tailored Car Finance package.

Call us at Advance Car Loans now on 1300 798 873 for a free Novated Lease quote today!