Novated leasing is becoming an increasingly popular way for employers to reward employees with tax benefits and savings when buying a new car. But there are still a large number of misconceptions around novated leasing. We recently asked our sales team for the six top novated misconceptions that they hear on a regular basis. And then, like true myth-busters – we cracked ‘em wide open.
Novated Myth #1
Myth: Novated leases are only for upper management on high salaries.
No matter how much you earn, novated leasing can help to reduce your taxable income by allowing you to pay for your car and associated vehicle expenses from your pre-tax income. While it’s true that those on higher salaries stand to save slightly more, employees on lower incomes can still enjoy tax benefits as well as savings such as discounted vehicle pricing, fuel discounts and GST savings.
Novated Myth #2
Myth: I have to drive a minimum number of kilometres each year.
This used to be the case, but with the changes to FBT laws in 2011, you no longer have to drive a minimum number of kilometres to get the best savings on FBT. Now, when you enter into a novated lease, no matter how much you drive, your FBT rate stays the same at a flat, statutory rate of 20%. In fact, driving lower kilometres on your novated lease may have a positive impact when you look to sell the vehicle at a later date.
Novated Myth #3
Myth: I have to buy a new car with a novated lease.
This may change between different providers, but Fleetcare Novated Lease customers are able to purchase a used car for their novated lease as long as the vehicle isn’t more than eight years old at the end of the lease period.
Novated Myth #4
Myth: Novated providers hide the true cost of expenses like fuel and tyres.
Any reputable novated lease provider will be upfront with you about the ongoing running costs that have been worked into your lease. Fluctuating prices such as fuel will be averaged within your initial quote, but only true expenses are charged against your account. Whatever costs you don’t use are simply added to your account as a credit which can be accessed at any time.
Novated Myth #5
Myth: You still pay GST on novated leases.
Depending on their policy and accounting treatment of GST, the majority of employers will pass on GST benefits using the following process:
As long as you purchase your new or used car through a dealership, you pay no GST on the purchase price. You will pay GST at the point of sale for your running costs such as fuel and servicing, but your employer then credits you back the GST paid as an income tax credit, effectively saving you GST on your vehicle expenses for the life of your novated lease.
Novated Myth #6
Myth: Novated leasing is expensive to insure
A novated leased vehicle may cost you more to insure and it’s always worth shopping around. But be sure to compare your policies carefully as we found that most novated insurance policies offer additional protection that you wouldn’t get with a normal car insurance policy.
- Guaranteed Asset Protection (GAP) cover – pays the gap between the residual value and the insured value at time of write-off
- Lease Protection Insurance (LPI) – covers the cost of your lease if you lose your job or become injured
- Excess Reimbursement – covers any excess payable if you make an insurance claim
Have you got a myth you’d like us to bust? Feel free to get in touch on 134 333.
As with any financial decision, we advise that you seek independent financial advice to make sure that a novated lease will suit your individual requirements.