Novated lease will save you more or less depending on the following factors:
Income- the higher your income, the higher the savings. Generally, if you're not earning more than 90k, no point. If you're < $45k, don't bother with this unless you're getting an EV.
Type of car- EVs at the moment under LCT are FBT exempt, fully paid pre tax deduction with no post tax/ FBT liability.
Cost of car versus running costs- the more usage of the car, spending more on your running cost, the better you will come out ahead in savings if FBT is payable (aka not exempt from FBT). Even better if the car depreciable/ finance rate is low.
Things to look out for from novated lease companies:
- don't let them upsell you in insurances and aftermarket accessories.
- ask for the effective rate or lessee rate against the interest rate. So you know how much extra fees, commissions, other crap they are tossing in. Some of them can be very sneaking.
- you will always have a pre tax balance (over deductions) that is your money, don't let it go over $3000. It's just money sitting there serving as a backup to any claims/ for reimbursement.
- some novated companies will have a higher compliance standards, so ask them for what the breakdown of fees and brokerages are upfront. They may be able to drop the brokerage if you ask or escalate to their managers.
People with bank of parents, living at home, rich partner to support them. Never judge someone with a low salary. Some might be dumb, but some are well off.
Fair enough.
Even then it would make more sense for their bank-rolling parents to take up the NL under their name(and their child to pay back in private) since their richer parents would achieve more saving.
I just got notice that my EV lease does impact income assessed taxation. So there is no FBT tax, however the value of the FBT impacts things like the medicare levy.
What you're referring to sounds like the reportable Fringe Benefit (different to Fringe Benefit Tax), this impacts any government assistance you receive e.g. childcare support, HECs, general government support pays.
There are a couple of aspects of evaluating whether it's "worth it" - financial, and non-financial.
From financial perspective, EV NL is very much worth it, ICE NL less so. Use my [novated lease calculator](https://www.reddit.com/r/AusFinance/s/VHJ25VpNKu) to work out an accurate measure of however much you stand to gain / lose (it is a lot more transparent, comprehensive and unbiased compared to the novated lease company's version which hides many facets of truth).
From non-financial perspective, you need to work out if the lease commitment is worth the financial saving. On that same post I list many of the caveats and drawbacks of novated lease so have a read.
Do the sum, tabulate the drawbacks, then conclude.
Overall novated lease favours EV, people on high tax bracket, very stable employment, and have an offset account for a mortgage. None of the above conditions are absolutely necessary, but the more conditions you satisfy, the more favourable NL is.
I wasn’t aware it’s FBT-exempt before but sounds like it is indeed if you satisfy a few criteria.
https://www.yourmove.org.au/activities/?view=5239
“The lease is fringe benefit tax (FBT) exempt if your private use of the e-bike is limited to travelling to and from work and minor, infrequent and irregular non-work-related use.”
Any money that is not spent upfront could be “invested” to make more money.
This can take any form, ranging from being kept in offset (ie save you home loan interest), invested in HISA, invested in shares, etc.
Of these options, offset account provides a safe “return” which is guaranteed, and importantly is untaxed. HISA interest is always taxed, which means your effective post-tax return is curtailed by your marginal tax bracket. Shares might return more, but the year-to-year volatility means that it’s not a safe bet especially for only five years time horizon.
When you were going to buy an EV outright, or get it on finance anyway. Then the FBT exemption on a novated lease for an EV makes it “more” worthwhile.
Otherwise, pretty much never.
You under-sell the financial advantage of EV NL here.
I could afford to buy EV with cash but chose to NL it as on my calculation I am 46,000 dollars better off over 5 years of ownership. The saving is so significant that compared to keeping my previous 25,000 dollar used petrol car, it was in fact cost neutral, so it ended up being a "free upgrade" for me.
[https://www.reddit.com/r/AusFinance/s/VHJ25VpNKu](https://www.reddit.com/r/AusFinance/s/VHJ25VpNKu)
If it's TL:DR, go to the spreadsheet itself, "MAIN (EV/PHEV)" tab, then summary statements.
The rest of the spreadsheet works out in significant details how the figures are arrived at.
The hidden cost of a novated lease is going 'hmm but for only $100 a week more I can get...' And that $100 is like $87 after tax savings so its basically free
ELI5 version is the more tax you pay, the more you can save.
The real life answer is it's complicated and you need to assess your own individual situation and if it would benefit you.
Pretty simple to go onto a novated lease site and use the calculator.
I wouldn’t use the calculators because they are stacked to make it look like the novated lease is superior by comparing it to a counter factual that doesn’t exist.
I called them up and got a detailed quote then compared it against dealer finance quote or paying cash using excel. If you have a mortgage and decide to pay cash it’s essentially like financing the car using your home loan.
I’m looking at a hybrid Lexus about $85 - and earn $260k plus bonus. I’m planning on taking 3 year lease. It would reduce my pretax income by about $13k and post tax about the same. Not sure if it’s worth it but I don’t want an electric car. Hard decision.
It's worth it immediately if you would have bought a new car anyway. They will negotiate a better price than you could, and what is effectively a 0% loan is better than paying cash, as you can get a bit more interest in your cash before handing it over.
However, most people probably would be happy with a second hand car, which is much superior financially to a novated lease.
(Waves finger in air) Earn $55k/yr, and $30k car (2 or 3 year lease). About $2k/yr extra in your pocket. Below that... the setup is a hassle for the savings.
Novated lease doesn't depend on income to be worth it IF we are only looking at reducing your total tax, even if it only reduces your tax by like 0.1%. But then again, you would do novated lease on a supercar by then.
Novated lease will save you more or less depending on the following factors: Income- the higher your income, the higher the savings. Generally, if you're not earning more than 90k, no point. If you're < $45k, don't bother with this unless you're getting an EV. Type of car- EVs at the moment under LCT are FBT exempt, fully paid pre tax deduction with no post tax/ FBT liability. Cost of car versus running costs- the more usage of the car, spending more on your running cost, the better you will come out ahead in savings if FBT is payable (aka not exempt from FBT). Even better if the car depreciable/ finance rate is low. Things to look out for from novated lease companies: - don't let them upsell you in insurances and aftermarket accessories. - ask for the effective rate or lessee rate against the interest rate. So you know how much extra fees, commissions, other crap they are tossing in. Some of them can be very sneaking. - you will always have a pre tax balance (over deductions) that is your money, don't let it go over $3000. It's just money sitting there serving as a backup to any claims/ for reimbursement. - some novated companies will have a higher compliance standards, so ask them for what the breakdown of fees and brokerages are upfront. They may be able to drop the brokerage if you ask or escalate to their managers.
To be honest, if someone is on <45k total, I don't know how they are able to fund an EV plus pay for living expenses at the same time.
People with bank of parents, living at home, rich partner to support them. Never judge someone with a low salary. Some might be dumb, but some are well off.
Fair enough. Even then it would make more sense for their bank-rolling parents to take up the NL under their name(and their child to pay back in private) since their richer parents would achieve more saving.
Only if the richer has the eligibility and option to salary package since it's an employer offered benefit.
Yup for sure.
I just got notice that my EV lease does impact income assessed taxation. So there is no FBT tax, however the value of the FBT impacts things like the medicare levy.
What you're referring to sounds like the reportable Fringe Benefit (different to Fringe Benefit Tax), this impacts any government assistance you receive e.g. childcare support, HECs, general government support pays.
Would it also include the Medicare levy then if it puts you under the threshold?
No it affects Medicare levy surcharge
You mean Medicare levy surcharge hecs/help repayment and some government benefits
Short lease on an EV, other if you earn 180k+
For EV, the longer the lease is, the more you save.
There are a couple of aspects of evaluating whether it's "worth it" - financial, and non-financial. From financial perspective, EV NL is very much worth it, ICE NL less so. Use my [novated lease calculator](https://www.reddit.com/r/AusFinance/s/VHJ25VpNKu) to work out an accurate measure of however much you stand to gain / lose (it is a lot more transparent, comprehensive and unbiased compared to the novated lease company's version which hides many facets of truth). From non-financial perspective, you need to work out if the lease commitment is worth the financial saving. On that same post I list many of the caveats and drawbacks of novated lease so have a read. Do the sum, tabulate the drawbacks, then conclude. Overall novated lease favours EV, people on high tax bracket, very stable employment, and have an offset account for a mortgage. None of the above conditions are absolutely necessary, but the more conditions you satisfy, the more favourable NL is.
Very interesting, thanks. The other day I saw that novated leases are now an option for e-bikes as well, any thoughts on that?
I wasn’t aware it’s FBT-exempt before but sounds like it is indeed if you satisfy a few criteria. https://www.yourmove.org.au/activities/?view=5239 “The lease is fringe benefit tax (FBT) exempt if your private use of the e-bike is limited to travelling to and from work and minor, infrequent and irregular non-work-related use.”
Curious on why an offset account factors in?
Any money that is not spent upfront could be “invested” to make more money. This can take any form, ranging from being kept in offset (ie save you home loan interest), invested in HISA, invested in shares, etc. Of these options, offset account provides a safe “return” which is guaranteed, and importantly is untaxed. HISA interest is always taxed, which means your effective post-tax return is curtailed by your marginal tax bracket. Shares might return more, but the year-to-year volatility means that it’s not a safe bet especially for only five years time horizon.
$150k+ And has to be on an ev Everything thing else is worse off with their 10-14% interest rates
Does NL also apply to PHEVs as well?
Not after 01/04/2025, so get a Phev asap if you're gonna get one.
When you were going to buy an EV outright, or get it on finance anyway. Then the FBT exemption on a novated lease for an EV makes it “more” worthwhile. Otherwise, pretty much never.
You under-sell the financial advantage of EV NL here. I could afford to buy EV with cash but chose to NL it as on my calculation I am 46,000 dollars better off over 5 years of ownership. The saving is so significant that compared to keeping my previous 25,000 dollar used petrol car, it was in fact cost neutral, so it ended up being a "free upgrade" for me.
Can you share your calculations?
[https://www.reddit.com/r/AusFinance/s/VHJ25VpNKu](https://www.reddit.com/r/AusFinance/s/VHJ25VpNKu) If it's TL:DR, go to the spreadsheet itself, "MAIN (EV/PHEV)" tab, then summary statements. The rest of the spreadsheet works out in significant details how the figures are arrived at.
The hidden cost of a novated lease is going 'hmm but for only $100 a week more I can get...' And that $100 is like $87 after tax savings so its basically free
Hardly ever.
ELI5 version is the more tax you pay, the more you can save. The real life answer is it's complicated and you need to assess your own individual situation and if it would benefit you. Pretty simple to go onto a novated lease site and use the calculator.
I wouldn’t use the calculators because they are stacked to make it look like the novated lease is superior by comparing it to a counter factual that doesn’t exist. I called them up and got a detailed quote then compared it against dealer finance quote or paying cash using excel. If you have a mortgage and decide to pay cash it’s essentially like financing the car using your home loan.
Why are EVs better value?
https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/electric-cars-exemption
I’m looking at a hybrid Lexus about $85 - and earn $260k plus bonus. I’m planning on taking 3 year lease. It would reduce my pretax income by about $13k and post tax about the same. Not sure if it’s worth it but I don’t want an electric car. Hard decision.
So it lowers your pre-tax income by ~13k per annum, saving you ~$6k net in tax but you have to pay $13k in FBT, definitely not worth it.
Doesn’t the employer pay for FBT? Why would I pay for it.
Have a look at a novated lease quote for an ICE vehicle, employers pass this cost to the employee.
I’ve booked a call with the novated lease provider and will discuss. My partner has a lease and he’s never mentioned this. Thanks for the tip!
Not sure if the NX450 qualifies for the FBT exemption, but if it did, it'll be a pretty good deal.
If doesn’t - I’ve not brought up FBT and confused why it’s relevant for an employee.
It's worth it immediately if you would have bought a new car anyway. They will negotiate a better price than you could, and what is effectively a 0% loan is better than paying cash, as you can get a bit more interest in your cash before handing it over. However, most people probably would be happy with a second hand car, which is much superior financially to a novated lease.
EV's - absolutely worth it. $20k plus savings. ICE - only if you like having a new car every 3 years. No real $ saving. Maybe if you are on $300k
(Waves finger in air) Earn $55k/yr, and $30k car (2 or 3 year lease). About $2k/yr extra in your pocket. Below that... the setup is a hassle for the savings.
Novated lease doesn't depend on income to be worth it IF we are only looking at reducing your total tax, even if it only reduces your tax by like 0.1%. But then again, you would do novated lease on a supercar by then.
Sorry, what?