One great way to reduce your taxable income (and avoid GST)

Many of us have probably had the experience of seeing the tax component of a salary slip and feeling a little deflated. Tax is important but, still, there are efficient ways to optimise your salary so you’re paying the right level of tax and making your salary work effectively for you. Tax can be complicated, and it can be hard to fully understand what you qualify for. But one of the best ways to reduce your taxable income is tied to two things most people are doing already – earning a full time income and having a car. 

Novated leasing: The tax equaliser

If you haven’t heard of novated leasing, it’s making a big difference for people in Australia, who are wisely tapping into their full salary to avoid a hefty income tax bill. Naturally, you might be wary when you hear the word ‘lease’. It can put people off before they find out more, but given the facts you might realise that it can be more financially savvy than buying outright or getting a car loan, and it puts a pile of cash back in your pocket. In short, it’s a bit of a game changer. So how does it work?

Access to pre-tax income

Firstly, unlike a car loan, a novated lease is out of your pre-tax income. When you buy outright or make payments on a car loan, you’re doing this out of your net income – that is, after tax. So, you have your full, gross salary and a portion of that goes straight to tax, never to be seen again. Then, you reduce what’s left further by paying for your car. Instead, with a novated lease, your employer makes payments towards your car utilising your full, gross salary, making your taxable salary smaller, so you pay less tax. And of course you then avoid obliterating your net salary with pricey car payments. The savings are pretty significant – on a standard novated lease with a salary of around $70,000 and a car like a new Toyota RAV4, you’d save $17,500 in tax over 3 years.

GST waiving

Secondly, a novated lease lets you save on GST – that’s a 10% saving right off the bat. The financier and your novated lease provider handle the GST (and as a business they can claim it back, so they won’t pass it on to you). You won’t pay GST on your car, and you can even save GST on parts and labour costs. This is something you can’t access if you buy outright or opt for a car loan. You can probably start to see how, if you need a car, a novated lease is an incredibly savvy way to tackle your tax bill.

Avoid paying more than you need to

But it doesn’t stop there. A good novated lease provider will be able to get you access to wholesale (fleet) pricing, which means you’ll get the best possible price on the car you want. And better still, perhaps, a novated lease lets you put all of your running costs into your monthly payments. That is, your novated lease provider will estimate your fuel, servicing, insurance, roadside assistance and rego needs across the lease and factor that in with your car, so you only need worry about one smooth monthly payment. You even get a fuel card that you can use each time you fill up, so you won’t be paying anything out of pocket for fuel at the servo. You can learn more in our article ‘What’s included in a novated lease salary package?‘.

If you’re always on the hunt for smart ways to handle your tax obligations and keep cash in your pocket, a novated lease offers a pretty compelling argument. Using your pre-tax salary is something of a rarity, so if you need a car, it’s well worth considering. 

Get in touch

We consider ourselves to be experts in the novated leasing space, so if you have any questions or want to chat through the process, feel free to give us a call on 1300 888 594. You can request a callback or send us a message if that suits you better. We love finding the best tailored package for people’s specific needs, to optimise effectiveness of salary and maximise savings.