How Much Will I Save on a Novated Lease?

A novated lease can lead to considerable financial savings, largely due to the tax benefits it provides. When structured as a salary packaging arrangement, a novated lease enables you to pay for your vehicle using pre-tax income, effectively lowering your taxable income and maximising your take-home pay. Here’s a look at the main ways you can save with a novated lease.

Key Savings from a Novated Lease

1. Reduced Taxable Income
   One of the main benefits of a novated lease is the reduction in your taxable income. For instance, if you’re on an annual salary of $80,000 and have a lease payment of $10,000, your taxable income would drop to $70,000. Given a marginal tax rate of 32.5%, this could lead to an annual tax saving of around $3,250.

2. Navigating Fringe Benefits Tax (FBT)
   While novated leases are subject to Fringe Benefits Tax (FBT), there are ways to mitigate its impact. Employers often use techniques like the Employee Contribution Method (ECM), which involves making a portion of payments from your post-tax income. This strategy can reduce the overall FBT liability, resulting in more net savings for you, especially if you’re a high-income earner.

3. Example Calculations
   To illustrate, consider a high-income earner with a $150,000 salary and a $20,000 annual lease payment. In this case:

• Without Lease: Taxable income remains at $150,000.

• With Lease: Taxable income reduces to $130,000.

• Estimated Tax Savings: Approximately $6,600 annually, considering the applicable marginal tax rate.

4. Another example is someone earning $100,000 per year with a car lease valued at around $68,000 over five years. Here, the total tax savings could reach up to $38,965 over the lease term.

5. Using a Novated Lease Calculator
   For a clearer idea of your own savings, it’s recommended to use a novated lease calculator. By inputting variables like your income, car price, and lease term, you can see a personalised estimate of how much you might save. This tool can be invaluable in helping you decide if a novated lease is the right choice.

Final Thoughts

A novated lease offers significant savings potential, especially for those in higher income brackets. By reducing taxable income and managing FBT effectively, you may find that a novated lease is a financially savvy way to drive a vehicle of your choice.

Interested in finding out exactly how much you could save? Use our novated lease calculator today and start enjoying the benefits of tax savings on your next car!