Is a Novated Lease Better Than a Company Car?
When deciding between a novated lease and a company car, it’s essential to weigh up the benefits and responsibilities associated with each option. Both have their advantages, but the better choice depends on your financial goals, vehicle usage, and personal preferences.
Tax Benefits
One of the biggest attractions of a novated lease is the potential for tax savings. Payments are deducted from your pre-tax salary, lowering your taxable income and reducing your overall tax bill. This can be particularly beneficial for high-income earners. On the other hand, while company cars can offer some tax advantages, they are often subject to fringe benefits tax (FBT), which can sometimes be passed on to employees, reducing the tax benefits.
Ownership and Flexibility
A novated lease offers more flexibility when it comes to vehicle choice and usage. You can select the car that suits your needs, and you have the option to use it for personal purposes. At the end of the lease, you may purchase the vehicle, return it, or start a new lease. In contrast, with a company car, the vehicle is owned by your employer, and your choices may be limited. You may also be required to follow company policies regarding vehicle use and maintenance, which can restrict your personal use.
Financial Responsibility
A novated lease places more financial responsibility on the employee, as you’ll be managing payments and potentially covering costs not included in the lease, such as fuel or excessive wear and tear. However, many novated leases bundle running costs like maintenance and insurance into one payment, making budgeting simpler. With a company car, the employer covers the bulk of these expenses, meaning less financial risk for you, but you sacrifice the flexibility and potential ownership of the vehicle.
Long-Term Commitment
Novated leases generally require a one to five-year commitment. If you change jobs, you might need to transfer the lease to a new employer or manage payments on your own. Company cars, on the other hand, are tied to your employment, and you simply return the car if you leave the job, with no further obligation.
Usage Patterns
A novated lease is often more suitable for people who drive frequently for both personal and work purposes, as there are no restrictions on how you use the vehicle. Company cars are typically for business use, and if you don’t drive much for work, you might not be maximising the benefit.
Both a novated lease and a company car come with their pros and cons. A novated lease is ideal for those seeking tax savings and greater control over their vehicle choice, while a company car is better suited to those wanting convenience and reduced financial responsibility. Evaluate your own situation and consult with a financial advisor to make the best choice.
Still unsure which option suits your needs? Contact us today for tailored advice on whether a novated lease or a company car is the right choice for you.