Novated Leasing: Everything you need to know

Innovative leasing can save you some serious money.

Cars are known to be the second biggest purchase most of us make in our lives and one of the very few things we are willing to go into big debt for, which is what makes the idea of ​​upgraded leasing so appealing once you figured out what it is.

Yes, it does sound like something your financial advisor starts talking about right before you start to fall asleep, but the fact is that it can effectively relieve you of the pain of owning a car as well as part of it.

In an ideal world, you would have access to the car you want and pay nothing for it, but you're not a magician or a celebrity, so a groundbreaking rental that can reduce the amount of money coming out of your pocket and put you in shiny new cars more often.

What is a renewal lease?

Essentially, groundbreaking leasing involves a convenient and financially beneficial third party in a car purchase agreement, with your employer joining you and the seller in a kind of "car manager". While this can save you money in the long run, it's a little tricky to figure out at first because you're basically being asked to pay for something you won't actually own. Hence the "rent" part.

On the plus side, the word "new" sounds suspicious, like something to do with taxes and accountants, and it is; the good news is that it can actually help you access some money that might otherwise be taxable.

Essentially, an upgraded lease means your employer is a party to your purchase agreement and allows you to pay for your car as part of your payroll package (which also conveniently saves them some money) by paying your car payments for you out of your pre-tax income. .

Your income tax is then calculated based on your reduced salary, which means you have more disposable income.

Another tax bonus is that you don't have to pay GST on the purchase price of a car when you don't buy it, reducing the cost by another 10 percent.

How does it work?

Typically, you rent a car for a set period of time – usually at least two years, but sometimes three or five – and after that period you can either trade it in for a new model or sign a new lease (meaning you never don't get stuck with an old or obsolete car for too long), or if you've fallen deeply in love with your car, you can pay a predetermined fee to buy it and keep it.

This is often referred to as an "air charge", perhaps because it inflates to a larger number than you might at first believe.

To compare an upgraded lease to the more typical approach of getting an auto loan and just buying a car, consider that your loan will be paid in full from your after-tax dollars that you receive in your bank account every week after taxes. brutally removed.

With the updated rent, you're paying out of that great theoretical money you've heard about as your "wage", so you essentially have more money to play with.

What you need to understand is that you are not renting a car or lending it, you are renting it; paying the amount you own, but really, if you want to, never pay it in full, which means you can flip your car regularly and change brands, styles, sizes as you wish.

A KPMG spokesperson explained this, perhaps as concisely as an accountant could: “The Renewed Lease is about you, your fleet supplier, and your employer. This allows an employer or business to rent a vehicle on behalf of an employee, with the employee, not the business, responsible for the payments.

“The difference between refreshed leases and conventional financing is that your vehicle payments include all running costs and are taken from your pre-tax paycheck, so no matter what tax scale you pay, there will always be a benefit.”

If you are an employer, then of course the bonus is that you become a more attractive boss by offering your employee a new rent package that costs you nothing. This makes you what pioneering leasing company MotorPac likes to call "the employer of choice," meaning your employees will love you and want to keep working for you.

How much are you saving?

Some companies offer a handy updated car rental calculator that lets you calculate exactly how much you'll save based on variables such as the length of your rental, your income, and your choice of car.

There are some specific examples on other websites to make things a bit clearer. Adam, 26, a house painter making $60,000 a year, rents a car for three years with an annual mileage of 20,000 km.

His car's pre-tax value is $7593.13, which reduces his taxable income to $52,406.87. This reduces his annual tax payable from $12,247 to $9627.09, meaning his annual disposable income is now $34,825.08 instead of $31,446, meaning his “new benefit” is $3379.

Slightly higher in the rankings, 44-year-old Lisa has rented a new SUV that she uses for work and family duties for three years with 15,000 km per year. She earns $90,000 per year, and after reducing her taxable income by the $6158.90 annual pre-tax car value, she receives a newly introduced $3019 benefit.

Obviously the numbers vary a lot depending on your circumstances and how expensive the car you want to get under a renewal lease is, but the tax benefits are quite clear.

Are there any disadvantages?

Of course, there is no perfect deal, and there are potential pitfalls to be aware of when renewing a lease. For example, if you lose your job, you may have to force the new employer to take over the new lease, or you may have to terminate the lease and pay the amount due, and you may face additional costs.

Renewal leases also often come with administration fees, and you are likely to pay a higher interest rate on a renewed lease compared to an auto loan.

In the end, while it's wise to use an updated rent calculator and work out the amounts, it's in your best interest to discuss getting an updated rent with your accountant, who can best advise what the benefit is to you, depending on what the tax bracket is. where you are.

Have you tried the new lease and did it work for you? Tell us about it in the comments below.