Salary sacrificing, or salary packaging, allows you to use pre-tax income to pay for benefits like a novated car lease, potentially reducing your taxable income and saving you money. This blog explains how it works, busts common myths, and shows how Fleetcare can help you maximise the benefits—whether for a new, used, or even your existing car.
What is salary sacrificing and how could it save you money?
Now if you’re a regular wage or salary worker there’s a fair chance that you’ve come across the term salary sacrificing or salary packaging, and just maybe it’s had you scratching your head. Why would you sacrifice your salary? How can you “package” your salary? Here’s a straightforward explanation of what it is, how it all works, how a novated lease could benefit you, and we’ll bust some all-too common myths about it.
How salary sacrificing works
Salary sacrificing or better known as salary packaging is a benefit offered by some employers that allows employees to use a portion of their before-tax salary to pay for certain benefits. Depending on the industry you work in these can include; extra superannuation contributions, some electronic devices, and one of the most popular options in Australia —novated leases for cars.
By using your salary before the tax comes out for these benefits, you could effectively reduce the income tax you pay and potentially take home more pay in your pocket each pay day, than if you paid for those same expenses using your after-tax income. However, as with any financial strategy, salary sacrificing isn’t a one-size-fits-all solution. It’s crucial to consider your financial situation and the potential advantages and disadvantages.
What is a novated lease?
This benefit allows you to package the cost of the car and its running costs like fuel or charging, maintenance, insurance, tyres and more into one regular payment taken from some of your before-tax salary each pay. Depending on the car you choose, these payments could come out using 100% of your before-tax salary thanks to the Electric Car Discount, meaning you could save thousands more in income tax.
New cars only?
Now, there are many myths about novated leasing, and one of them is that it’s only available for new cars.
While it’s true that many Australians opt for novated leases on new cars, you aren’t limited to shiny new rides fresh off the showroom floor, it’s also available on used cars. In fact, it’s even available on your existing car through a sale and leaseback, depending on how old it is.
A “sale and leaseback,” involves selling your car to a leasing company like Fleetcare and then leasing it back under a novated lease arrangement.
This option can free up cash tied up in your car while allowing you to enjoy the same potential tax benefits as leasing a new one. It’s an excellent solution for those who love their current car but still want to take advantage of the financial perks of salary packaging.
I don’t earn enough to benefit
Another myth is that you need a high income to benefit from salary packaging.
It’s a common misconception that salary packaging only makes sense for high-income earners. The truth is, the benefits of salary packaging depend more on your financial priorities than your income. A Fleetcare novated lease could provide significant tax savings by reducing your taxable income, while it could also save you money on running costs like fuel or charging, insurance, and servicing.
Even mid-level income earners could find value in salary packaging, as the possible tax savings and convenience of all those bundled costs could often outweigh the potential before-tax salary reduction. However, it’s wise to consult a financial advisor to crunch the numbers based on your unique circumstances, or you could also take a look at our handy calculator.
A hassle-free option
Perhaps you’ve heard that salary packaging is a complicated hassle? Well, while it does involve some paperwork upfront, partnering with a trusted novated leasing company like Fleetcare simplifies the entire process. From setting up your novated lease to managing running costs and ensuring compliance with Fringe Benefits Tax (FBT) regulations, Fleetcare manages these complex tasks for you.
Let’s Compare a Novated Lease to a Personal Loan
If you’re weighing up your options for financing a car, it’s essential to understand how a novated lease compares to a personal loan.
A novated lease allows you to finance your next car and include the regular running costs by using some of your before-tax income. Depending on the car you choose, you could also make these payments all from your before-tax income. This option is available for eligible electric cars and involves taking advantage of the Electric Car Discount, which you can read more about here.
A personal loan involves borrowing a lump sum from a financial institution to purchase a car. You make the repayments and pay for the running costs using all of your post-tax salary. This may suit you if you prefer outright ownership and flexible payment structures.
When you compare the pair, you’ll find that a novated lease typically offers more financial advantages, particularly if you’re looking to maximise potential tax savings and simplify getting into and running your next car.
A powerful strategy
Salary packaging makes novated leasing a powerful financial strategy that could save you money and streamline your expenses, but it’s crucial to separate fact from fiction. Whether you’re considering a novated lease for a new car, weighing the pros and cons of a personal loan, or exploring sale and leaseback for an existing vehicle, Fleetcare’s here to guide you every step of the way.
If it’s time to take charge of your finances and make your money go the extra mile, then reach out to Fleetcare today on 134 333 to discuss how salary packaging can work for you.