What Is a Car Lease?
From the very beginning, you should know that a car lease is similar to the idea of a car rental for a certain period of time, which usually varies between 2 years and 5 years. There are also some different types of leases, including the novated lease.
Salary Packaging with a Novated Lease
This is one of the basic options to be taken into consideration and will provide your employer with the possibility of making lease payments for you, usually from the pre-tax income you receive. You will also have some major advantages because your taxable income will be reduced significantly, as well as the income tax you will have to pay.
One of the most important aspects of a lease is related to the extra operating costs you will have to pay for, including servicing and registration. Moreover, in most of the situations, there will also be a required amount for a FBT (Fringe Benefits Tax), which is calculated based on a forecast and the value of the actual vehicle you intend to purchase, as well as the total distance you will use your car for.
The similar aspect between this particular product and other type of leases is that a residual value will always remain at the end of the term. You can regard this as a lump sum, if you want to make the situation clearer. This sum will always need to be paid to the financier and if there is any gap you will have to wear it as a gain or a loss.
Finally, when it comes to Salary Packaging with a Novated Lease, you should also know that the amounts of the repayment usually depend on the value of the lease for your car and some other important factors, such as the term of your loan, the level of interest, and the money that is to be deferred to the residual. With every modification of the lease payment, the interest charges will most definitely be affected so make sure you are really careful with managing the pay back process.
Steps for a Novated Lease
There are four major steps to be taken into consideration when it comes to applying for such a financial program. First of all, you will need to decide upon the perfect car for you, a car that suits your financial situation and will enable you to pay the amount you borrow back without encountering any financial difficulty. Then, you will have to use the services of a supplied in order to organize a lease.
The second step is related to the signing of a Deed of Novation, through which your employer is obliged to make payments on your behalf, using the method discussed above. This contract is usually valid until the lease expires.
Next, your employer will have to deduce the amounts he pays from the salary you are provided with. However, your taxable income will also be reduced, so there will also be an advantage for you.
The fourth and final step is related to what you should do when the term of your lease expires. One of the most common procedures is to pay a residual and become the legitimate owner of the vehicle, with full rights. Alternatively, you can choose to trade it or refinance the residual if you cannot afford to pay it in full. This last solution will usually involve an extra loan or lease.
What Are Your Advantages?
Apart from the reduced taxed, which applies because of the employer paying money on your behalf and reducing it from your salary, you might also benefit from some extra advantages, but it is always recommended to talk to your accountant (or with representatives of a lease company if you do not have one) and get some useful advice that applies to your financial situation.
In most of the cases, the applicants for this financial program were also able to save money because of the difference between the market value of the car and the actual residual they had to pay at the end of the expiration period for their lease.
Furthermore, you will also have the opportunity to choose the ideal car for you, without having any limitations, as in the case of other similar financial programs. Even if you switch employers, you will be the only person in control of its maintenance and enjoy every aspect related to the personal use of the vehicle.
What Are Your Alternatives?
There are also some alternative financing programs you should know about. For example, the standard car lease is very similar to the novated lease in many ways. The limit of the amount you will be able to borrow is usually estimated at $57,000, but this should be enough for you to buy the luxury car you have always dreamed of.
If you are a consumer, you should know that the monthly repayments in this situation will usually be lower because of the leases. Therefore, compared to a regular car loan, this option is more affordable for everyone and suitable for you if you want to stop struggling with the repayments.
In addition to this, the amount financed will be reduced by the GST exclusion from the total price of the purchase and the end of the period, you will be required to pay for a residual in order to make the vehicle fully yours.
Finally, for the businesses, most of the payments are usually tax deductible, but this only depends on the taxation law and the specific financial situation of the company. You should also know that the best finance options for cars you can get are dependent on certain financials. Therefore, do not hesitate to get the help of your accountant.
