With a novated lease, your employer deducts a portion of your finance payments and vehicle running costs from your pre-tax salary, so you pay less tax and have more money to spend on payday. You also pay a portion of your payment from your post tax salary so there’ll be no FBT to pay.

Here’s an example of how it works for John – an office worker who earns an annual gross salary of $85,000.

With a car loan, John purchases his car for the advertised cost, makes his car loan payments and pays his running costs from his post-tax salary.

However, with a novated lease, he pays no GST on the purchase price, instantly saving 10%. He makes one payment to cover his car loan and all his running costs before he receives his salary. Part of this payment is deducted from his post-tax salary so that he doesn’t have to pay any Fringe Benefits Tax. The remaining amount comes from his pre-tax salary. John’s employer passes on the GST savings on the finance payments and the running costs of his car, so John goes on saving throughout his lease.

John chooses a Toyota Camry Altise which costs $26,490 drive away.

With a Car Loan With a Novated Lease
John’s salary 85,000 John’s salary 85,000
Pre-tax payment Pre-tax payment 4,620
John’s taxable salary 85,000 John’s taxable salary 80,380
Tax and Medicare 20,872 Tax and Medicare 19,278
Salary after tax 64,128 Salary after tax 61,050
Johns car loan payment* 7,332 Johns after-tax payment 5,030
John’s running costs 4,553
Money available after car costs 52,243 Money available after car costs 56,020
Extra money with novated leasing per year 3,777

*Car loan rate 10% (effective rate) pa, 5 year lease, NL rate 9.73% (effective rate) pa

John will receive over $3,777 extra a year by purchasing his car with a novated lease!

And he should save even more. Any discount we receive by using our buying power to purchase the car on his behalf will be passed on to John. So he not only saves on the purchase price but goes on saving through his lease.