You’ve probably heard the term ‘salary sacrifice’ to describe the process of paying for your car via your salary, but if you’ve also heard the term ‘novated lease’ then you might be wondering if these terms are interchangeable.

This chapter (and the next) clears up the relationship between them, what the advantages are of salary sacrificing your car, and how it works.

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Salary sacrificing vs novated leasing

First up, to clarify… When it comes to a vehicle, salary sacrificing and novated leasing are essentially the same thing: one is a type of the other. A novated lease is the salary sacrifice of a vehicle and its running costs.

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Why it’s worth salary sacrificing your car with a novated lease

When you take up a novated lease, there are a few advantages:

1. You can include your car and all of your vehicle running costs – fuel, rego, roadside assist, insurance, servicing – in one easy payment.
2. This payment comes out of your pre-tax income, using cash that otherwise would go directly to the tax office and not to you.
3. A novated lease allows you to save up to $6,334 in GST on the cost of the car, plus an additional saving of 10% on the car’s running costs (e.g. fuel, servicing).
4. If you get a new car, you can access wholesale pricing to get a sizeable discount on the car’s overall price through us at Leaselab.

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What’s the impact of a novated lease on your income?

Remember that while your salary may be slightly lower with a novated lease, this is because your car and running costs are already taken care of.

If you use a standard car loan, or pay for your car’s costs out of pocket, you’d be using your income after tax instead of before tax. So you don’t get the benefit of saving thousands of dollars per year in tax.

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What you can salary sacrifice and how it works

The salary sacrifice process involves the following:

1. You choose a novated lease provider. And if your employer doesn’t currently work with them (or doesn’t offer novated leasing at all), then the process of getting set up is extremely quick and easy if they’re happy to accommodate your choice.
2. Your chosen novated lease provider will give you and your employer some paperwork to sign, and then guide your employer on the process of paying for your car on your behalf.
3. Your employer automatically makes your lease payments using your pre-tax salary in the usual pay cycle, and you receive your post-tax salary the way you normally would.
4. When your lease is nearly up, your novated lease provider will be in touch to let you know your options.

There are several different items that can be salary sacrificed, such as your laptop, phone, education courses, extra contributions to your super, and a host of others that you can read about on the ATO’s website. And the good news is that anyone who is paid via PAYG can sacrifice a vehicle – as long as their employer offers novated leasing.

Novated leasing costs an employer nothing and is actually very easy to set up (we have a useful employer guide with all the facts).

You can suggest us to your employer if they aren’t set up and we can guide them through the process.

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Considerations when salary packaging a car using a novated lease

If you’re keen to take up a novated lease and salary sacrifice your car, there are a few considerations:

1. Most importantly, you do need to have an employer and be paid via PAYG (which most people are).
2. Your employer needs to be either currently set up to provide novated leasing, or needs to agree to go through the simple setup process.

If you can’t get your employer on board to offer novated leasing, we can help. Just get in touch and we’ll walk you through it all.