Novated Lease Basics, Tricks and Traps | Auto Expert John Cadogan

Here’s how to avoid GST on a new car - without breaking the law. It's one of the most cost-effective and tax-effective ways for an ordinary mortal on a salary to own a new car.

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Novated leasing - also called ‘salary sacrifice’ - makes real sense for a lot of employees. It’s often the best way to own a new car. You can even do it on late-model used cars. I’m John Cadogan - the founder of AutoExpert.com.au - the place where Australian new car buyers save thousands on their next new cars … when they’re not roasting on Bondi Beach watching European tourists working on their sun tans. I handle a lot of novated leasing enquiries every month.

A novated lease is a simple three-way agreement between you, your employer and a finance company. Basically, you agree to the payments. They come out of your pre-tax salary. The Federal Government gives you a big, fat 80 per cent free kick on the fringe benefits tax (even if the vehicle never gets used for work).

Your employer makes the payments as a payroll deduction, from your pre-tax salary. So some of the money you would otherwise have paid in tax helps get you the car. That’s where the term ‘salary sacrifice’ comes from. That also reduces your taxable income. And the finance company does the administrative heavy lifting. They also technically own the car, and they lease it to you - which is why it’s a novated LEASE.

The LEASE part is a huge benefit to you, too. The finance company buys the car as part of their operational expenditure. And that means they get to claim the GST as an input tax credit. So, effectively, they get the GST back, and they pass this saving on to you. Bottom line - you pay the ex-GST price for the car. On a $40,000 car, that’s an up-front saving of $3600 - a walk-up start, with no negotiation required. On a fifty grand car it’s four-and-a-half thousand off. No questions asked. Show me the other way a normal employee gets the GST off a new car...

More employers should agree to novated leases for their key staff - and for purely selfish reasons. Think about it - if you’re an employer, you want to motivate and incentivise your key employees, right? Because they’re the ones making you the big bucks. You want to keep them pumping up the productivity. Here’s a small problem: Most incentives cost money. But a novated lease is essentially a zero cost incentive for you.

Like, here’s that several thousand dollar saving up front. Here’s your free kick on the tax front that effectively gets your employee either a better car for the same take-home spend, or the same car for a lower take-home spend. And if the employee leaves the business, the lease is theirs - it departs with them - it’s not a residual burden for you.

It’s a virtual zero-cost option for an employer, with huge benefits on the table for the employee, and it’s a super-effective incentive for those employees who are critical to the success of your business.

Do not get railroaded by a lazy, locked-in novated lease provider amping up the fees and charges. Do the sums - because there are other ways to get cheap car finance, and it’s philosophically reprehensible to see an arsehole financier profit from your hard work.

If you want help with a new car, the finance, novated lease, whatever - hit me up via the website. And remember: Always be yourself. Unless you can be a Jedi Knight. In that case, always be a Jedi. It’s the secret to happiness, and you heard it here first. I’m John Cadogan. I hope this helps. Thanks for watching.