Sale and leaseback
A sale and leaseback is how you can move your existing car onto a novated lease to start saving on tax.
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What is a sale and leaseback?
With a sale and leaseback, you sell your car to a lender and they loan it back to you. You get the value of your car in cash, so you can put it to better use, and keep using your car as normal.
A sale and leaseback might suit you if:
You’re an employee on a salary (PAYG)
You need a quick influx of cash
You want to access the tax savings and other benefits of a novated lease
You own your vehicle (or you’re paying it off somehow) and want to keep using it
You pay back the loan over time, but can operate the loan just like a novated lease (you can read more in our article ‘The benefits of a novated lease’). If you want to get a novated lease, but you’re worried that you can’t qualify as you already have a car you’re happy with, a sale and leaseback could be what you need.
How a sale and leaseback works
A lender purchases your existing vehicle for an agreed amount (or they pay out your existing finance agreement)
Your vehicle is set up on a novated lease with a fixed monthly payment amount due (terms range from 12-60 months and a set residual, or remaining amount, will apply at the end of the lease term)
The lease is novated – you’re salary sacrificing your car, so your employer makes payments on your behalf from your pre-tax income. You then have a lower taxable salary that you pay less tax on.
Once the lease ends, you can choose to pay the balance on your car and own it or you have some other options (see below).
At the end of a sale and leaseback
At the end of the lease when all payments are made, you have options:
You can own your car again by paying the residual; or
You can trade the vehicle, clear the residual, and lease a new vehicle; or
You can sell the vehicle, clear the residual and any profit is yours to keep, tax free.
Benefits of a sale and leaseback
You can keep your car and get the cash for it as if you’d sold it. A bit like having your cake and eating it.
You can access most benefits of a novated lease, which you can’t do on a standard car loan that you pay from your net (post-tax) income and that often has a very high interest rate.
You can still own your car later by simply paying the residual at the end of your lease, which is usually less than the value of your car at that time.
Sale and leaseback: Things to consider
With a sale and leaseback, your car can’t be more than 10 years old at the end of the lease, so not all vehicles can qualify.
You also need to have an employer who offers novated leasing. If they don’t, you can suggest us to your employer and we can help.
Sale and leaseback vs getting a novated lease on a new car
A novated lease has benefits that can’t be matched by any other type of car finance. It can save you several thousand dollars (or more) in most cases. While novated leases offer the most savings on new and used car purchases, if you do bring your existing car via a sale and leaseback, you can still enjoy:
Paying your lease via pre-tax income, lowering your taxable income and paying less tax.
Paying for all your running costs – fuel, servicing, insurance, roadside assistance, rego – from your pre-tax income too.
Not paying GST on parts and labour when you service your car.
However, with a sale and leaseback you will miss out on:
Wholesale (fleet) pricing, which we can get for you on a new car.
Not paying GST on the car itself (because you’ve already bought your car).
But still, you can make some decent savings over the life of the lease, as the example below shows.
A comparison: sale and leaseback vs buying outright vs a car loan
| Comparing a $40,000 car over 5 years: | Sale and leaseback | vs | Ownership | vs | Car loan |
|---|---|---|---|---|---|
| Gross salary | $100,000 | $100,000 | $100,000 | ||
| Claimable purchase and running costs (pre-tax) | $5,683 | $0 | $0 | ||
| Taxable income | $94,317 | $100,000 | $100,000 | ||
| Income tax payable | $22,056 | $24,187 | $24,187 | ||
| Net income | $72,261 | $75,813 | $75,813 | ||
| Post tax loan and running costs | $7,489 | $13,568 | $15,300 | ||
| GST paid | $0 | $1,648 | $1,648 | ||
| After-tax cash available | $64,772 | $60,597 | $58,865 | ||
| After-tax cash available (over 5 years) | $323,860 | $302,985 | $294,325 | ||
| Residual (balloon) | $15,411 | $0 | $0 | ||
| After-tax cash available after payment of residual | $308,449 | $302,985 | $294,325 | ||
Cash lost as a result |
$5,464 |
$14,124 |
This example assumes the following:
Lease/loan term = 5 years
$40,000 vehicle purchase price (divided over 5 years at $8,000 per year for ownership calculations).
$464 per month running costs (fuel, insurance, rego, servicing & maintenance, tyres, etc.) approximately 10,000 km per year.
Car loan interest rate 7.99%
Minimal business use
You can get an idea of the type of savings you might access using our novated lease calculator.
How to apply
If you have questions and want to chat through your unique situation to find out if a sale and leaseback is right for you, give us a call on 1300 888 594 or complete our enquiry form here.