How Much Tax Do You Save on a Novated Lease?
A novated lease can offer significant tax savings, but the exact amount depends on factors like your income, the vehicle you choose, and the terms of your lease. Here's a breakdown of how these tax savings work and how much you can potentially save.
1. Reduction in Taxable Income
One of the biggest tax-saving features of a novated lease is that the lease payments are deducted from your pre-tax salary. This lowers your taxable income, which in turn reduces the amount of income tax you have to pay. For instance, if you earn $100,000 annually and your novated lease payments amount to $12,000 per year, your taxable income drops to $88,000. Based on current tax rates, this could save you roughly $3,600 annually in income tax.
2. Claiming Vehicle-Related Expenses
With a novated lease, many of your vehicle-related expenses, such as fuel, insurance, and servicing, can be bundled into your lease payments and claimed as tax deductions. This further reduces your taxable income, providing ongoing savings.
3. Higher Savings for High-Income Earners
If you're a high-income earner, the benefits of a novated lease become even more pronounced. Because your marginal tax rate is higher, reducing your taxable income results in larger tax savings compared to someone on a lower income. For example, a person earning $150,000 might save more in tax through a novated lease than someone earning $60,000, simply due to the difference in their marginal tax rates.
4. Fringe Benefits Tax (FBT)
While novated leases do come with fringe benefits tax (FBT), some vehicles, particularly electric cars and plug-in hybrids, may be exempt from FBT if they fall below the luxury car tax threshold. This can lead to further savings, especially if you're considering a more eco-friendly vehicle option.
The amount of tax you save with a novated lease depends on several factors, including your salary and the vehicle you choose. High-income earners, in particular, can see significant savings through reductions in taxable income. To make the most of these benefits, it's always a good idea to consult with a financial advisor to tailor a novated lease arrangement that maximises your savings.
Curious about how much tax you could save with a novated lease? Contact us today to explore your options and discover the best way to maximise your savings.