Reasons Why Your Next Car Lease Should Be Novated

For the working adult, a car is is nearly a total necessity. Even in big cities with sprawling public transportation systems, upkeep can be poor, traffic still unreliable, and facilities unclean or worse. Plus, it’s hard to move that new refrigerator or TV into your home by hauling it into the subway. Having a car can help build prestige as well as the added convenience. But unlike homes, cars lose value over time – a car bought for $30,000 may be worth $10,000 or less by the time the owner is ready to sell it. The smartest purchases are investments in the future; things that are likely to increase in value that can be sold later for, ideally, more than they were bought for, even adjusting for inflation. The fact that cars become less valuable as they are used is part of why younger generations are becoming more likely to lease their cars rather than buy them.

Reasons Why Your Next Car Lease Should Be Novated
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However, if you’re the employee of an established company, there’s another option for leasing your car. A novated lease is similar to a typical lease, but it involves your employer as a middleman between you and the financing company. The employer pays all of the up-front costs, and those costs are then deducted from your paycheck. But how can you know if this is right for you?

  • No GST

GST stands for “Goods and Services Tax,” and is a fairly typical tax levied on most goods and services in dozens of countries around the world. GST tends to hover around or below the 10% range, which is fairly typical for a modern-day sales tax. However, on a $30,000 car, 10% sales tax is a hefty $3,000 – probably a decent chunk of your monthly net salary. By opting for a novated lease, you can avoid this cost entirely, effectively cutting more than 10% of the total price of the car up front, which means you can even opt for a nicer car than you would have otherwise.

Reasons Why Your Next Car Lease Should Be Novated
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  • Costs are Deducted Automatically

One major convenience of a novated lease is that the lease payments are automatically deducted from your salary – for the perpetually bill-conscious, this means one less thing to have to worry about paying for. Almost everyone is familiar with that end-of-the-month crunch, when money has to be managed more carefully in order to make sure bills and interest can be paid on time. When the money comes direct from your salary, there’s no reason to stress.

  • Salary Deductions are Pre-Tax

The absolute best thing about a novated lease is that the salary deductions, mentioned above, are calculated before income tax – so the gross income that is used to calculate income tax is the monthly income remaining after the car lease payments have been deducted. Depending on your salary and the tax laws for your particular area, this can actually end up saving you money. Even if lease payment deductions only barely cancel out income tax payments, it still means getting a car for almost nothing – an option that is definitely worth considering.

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