Is salary sacrificing a car worth it?

We know the scenario: You need to get a car but you’re agonising over salary sacrificing – is it worth it? Or is it better to pony up and buy outright? What about just settling on an old school car loan instead? It’s a common conundrum and you’re not alone. First up, you need to understand how the salary sacrifice process works. In Australia, the most cost effective way to salary sacrifice a car is via novated leasing, and there are a lot of positive factors to it, as well as some considerations. 

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As with all salary sacrificing, the first thing to bear in mind is that it will reduce what you receive each time in your payslip, as you’re paying for something (a car, in this case) from your salary. That might sound obvious but it can be a tiny shock to see the lower dollar amount, even though you’re getting a big benefit in return across the course of a year. So what are the benefits and what is it exactly about salary sacrificing, and specifically novated leasing, that many deem to be worth it?

Novated leasing benefits

There are a few key benefits a novated lease offers that you can’t get on an old fashioned car loan or when you buy outright.

You get access to your pre-tax income

Novated leasing and salary sacrificing are taken from your pre-tax income. What this means is that you’re using a part of your income that you would otherwise never see. On average customers will save around $16,000 or more over a 3-year lease, and that’s money they can put towards school fees, paying off their mortgage sooner, splashing out on a holiday, investing or just getting into a better car with all the trimmings.

When you buy a car outright or make payments on a standard car loan, you do this out of your ‘net’, or post-tax, salary, but with novated leasing, your employer pays your lease out of your ‘gross’, pre-tax salary, which makes your taxable income – the part of your salary available to the taxman – lower, meaning that you pay less tax as a result. And, of course, when you receive your salary in your bank account, your car is already taken care of, so there’s no payment to make.

You get to bypass GST

A novated lease allows you to skip paying GST on your salary sacrificed car. There’s no GST on the car itself, and no GST on parts and labour costs either, which isn’t possible when you buy outright or take out a car loan. A handy 10% discount most people don’t know about.

You get all of your car running costs included

Possibly the coolest thing about a novated lease is that you can bundle all of your car running costs – insurance, roadside assistance, servicing and even fuel and rego – in with your car and receive one simple, predictable monthly payment. Your novated lease provider will forecast your monthly usage up front, which allows for a smooth payment each month, and if you end up paying more than you use by the end of the lease, the money’s still yours and is returned to you. You can find out your balance at any time from your novated lease provider, and they’ll give you a dapper fuel card, which you can use to pay for fuel, so you never need to use money at the servo or worry about fluctuating fuel payments in your personal finance budget. Highly convenient.

You can get the best price on a car

A good novated lease provider will be able to get you access to wholesale (fleet) pricing, which is a further saving on the car you want on top of saving GST. You may be able to wangle something similar when you buy outright if you know where to go or get your timing right, but it’s a lot less likely and much more difficult. This is a standard service that some novated lease providers offer that would be otherwise largely unavailable to the individual consumer.