A novated lease case study

You might’ve heard something about novated leasing and are looking for a clear breakdown of the process. Well, we’ve got you covered with our novated lease case study, which presents a clear, detailed example of the type of experience you can expect. 

A quick summary: What is a novated lease?

A novated lease lets you use your pre-tax (gross) income to pay for your car. The perks of doing that might already be obvious (making use of salary you otherwise wouldn’t see, lowering your taxable income and therefore paying less tax), but there’s a lot more to the savings a novated lease offers:

1. Your employer makes car payments on your behalf so you also get to avoid paying GST on your car (just like a business expense). 

2. Your novated lease provider gets you access to fleet (wholesale) pricing if you choose to buy a new car (some whopping savings there); and 

3. You can include all of your running costs if you choose to (fuel, rego, servicing, insurance, roadside assistance) – and can save GST on parts and labour too. 

4. You get heaps of flexibility – at the start of a lease (buy a new car, a used car or bring your existing car), and at the end of a lease (you can continue as you are to lower the remaining balance on your car, you can upgrade for a similar cost or you can buy your car and either keep it or sell it on for a profit).

So now that we’re all up to speed, let’s crack on with a real life example. Bear in mind that this example is an indication only – the most powerful aspect of a novated lease is its flexibility. The best way to get a true idea of the savings you can expect is to get an obligation free quote.

A novated lease example: Nita, professional worker, in her 20’s

Nita is 27 and a web developer in a digital marketing team earning around $80k. She’s looking to get a new car and has heard that novated leasing might be the most cost effective way. 

Research

Nita researches providers and chats to a few to find out whether they're a fit for her, and learns that she’ll need to involve her employer. She discusses it with her employer, Jess, who isn’t set up and mentions that she’s found a simple employer guide that can help. 

Calculating costs and savings

After trying a couple of novated lease calculators to get an idea of her savings and what her payments will be, she calls the novated lease provider she likes most and asks some questions. Nita thinks she wants a Mazda 3 or something similar, and the novated lease provider explains that he’s able to offer independent advice. He says that they don’t affiliate with any brand or garage, wanting to keep as broad a selection as possible and that this flexibility is how they’re able to find the most savings for people. 

To illustrate a point, the novated lease provider explains that he’s able to save Nita $3,000 on the $30,000 list price of the car via his fleet pricing network. He offers her a few other options with decent savings but Nita is set on the Mazda 3. The novated lease provider says that they historically hold good value so she should be in a good position at the end of her lease, should she go ahead.

Getting a quote

Receiving the information she needs, Nita decides to go ahead with an obligation free quote over the phone. After discussing typical expenditure with Nita, the novated lease provider is able to forecast Nita’s average fuel costs, servicing costs, tyre needs and roadside assistance, which Nita thinks she wants to include in her novated lease, along with insurance and rego, for the maximum savings. 

The novated lease provider explains that the estimate is usually quite accurate, however if her regular payments are higher than needed, Nita will build up a surplus that still belongs to her. She can use this surplus to pay for unexpected car fixes, or she can have it returned to her at the end of the lease. There are plenty more scenarios too, and knowing that she keeps a balance with the novated lease provider that’s hers (and that it’s so efficient for her financially) is reassuring.

Nita receives her quote via email within an hour. She’s relieved because the quote is all on one page and very easy to understand – she had feared having to struggle through a huge document. 

Thinking time

Nita tells her novated lease provider that she’d like to mull over the quote for a couple of days. The novated lease provider is very understanding and says that in the meantime, if Nita would like, he can get her pre-approved for finance to save time. He explains that there’s no obligation at all but it will speed things up later if she chooses to go ahead. He says that he can also contact her employer and guide them through the process for her, again only if she’s happy for him to do so and completely obligation free. As Nita’s employer had shown some interest but was wary of the admin and time involved, she says yes and informs her employer that the novated lease provider will be in touch.

Going ahead

Having crunched some numbers, Nita decides that a novated lease will give her a saving of several thousands of dollars over a car loan (the thought of paying the full amount of $30,000 up front seemed a poor use of money to Nita, so she didn’t even consider buying outright). Jess, Nita’s employer, tells her that she was happy with the phone call she had with the novated lease provider. Jess felt that the process is a lot simpler than she had imagined and actually thinks novated leasing will be a really good perk to offer her team. Jess is reassured that the company isn’t liable for the loan and it will cost them nothing out of pocket – she also loves that there’s next to no time involved for her accounts manager to set it up. Nita contacts the novated lease provider and says she wants to go ahead. The novated lease provider has had Nita pre approved for the finance in the meantime. 

The admin-y step

Employee form: 

• The novated lease provider sends Nita her agreement form, which is quick-ish to fill out. 

Employer form:

• At the same time, he sends a short employer agreement to Jess (which just needs Jess’ signature to confirm that the company will make Nita’s car payments out of Nita’s salary on her behalf), a direct debit terms and conditions form and the payment amounts (pre-tax and post-tax deduction) they need to apply to Nita’s salary (which is a set and forget action). 

Getting the car

The paperwork is all set and Nita gets her welcome kit from the novated provider and picks up her car. The lease payment process is all automated and she doesn’t have to worry about it, and her welcome kit includes her fuel card that lets her pay for fuel automatically out of her novated lease account, which was budgeted for at the quote stage. She knows she can get an account report at any time and can submit receipts to be quickly reimbursed if she pays for fuel or servicing out of pocket. 

Nita has a 5-year lease and will be contacted by her provider around 3-6 months before the end of her lease to chat through her options. Until then, she’ll enjoy her car, the hassle-free convenience of having to make no car payments herself, and of course the money she’s saved in tax, which she decides to invest in stocks.

The end of the lease

Five years later, Nita’s lease is at an end. Across the term of her lease, Nita has saved more than $13,600 in tax.

Nita’s already decided that she wants to start a new lease and upgrade to a newer car. She loves the car she has but wants to retain value as much as possible, and she knows she can pay a similar amount that she has been but get a newer car. She’s earning quite a lot more now, so opts for a more expensive variant of the car, but given the tax saving effect of the novation, she will pay around the same amount out of pocket. She is able to sell her existing car for almost $2,000 more than the residual value (the balance remaining) on her lease, so she pockets that as profit. She then completes the paperwork on her new car and lease (which is faster this time), and she’s on her way again for five more years.