At the end of the financial year most of us receive a payment summary which outlines how much tax we have to pay this year and start to think of ways we can start minimising tax. There are options like claiming your phone if you use it for work or perhaps some home office expenses. Unfortunately, most of the time they don’t end up making too much of a difference only saving you a few hundred dollars. Luckily, there is a solution like novated leasing out there that could save you thousands in tax each year!
What is a Novated lease?
A Novated Lease is a type of salary packaging between yourself, your employer and a financier. Your employer deducts the lease payments and running costs on your behalf from mostly your pre-tax salary. This can lead to significant tax savings, as you are effectively paying for the vehicle with money that would otherwise be taxed at your marginal tax rate.
How do Novated Leases Work?
There are several benefits to a novated lease. The greatest benefit is that it allows you to salary package the lease payment, which can lead to significant tax savings. Additionally, you can create a budget for any of the associated running costs, meaning that you can not only pay for the car from your pre-tax salary but also its running costs. As the lease payments are taken from your salary over an extended period of time, you don’t need to worry about a large initial outlay. This allows you to purchase a better vehicle without straining your budget.
Here’s an example of what you can save compared to a traditional car loan!
- You earn $80,000 before tax each year
- A car worth $35,000
- Your running costs are calculated on driving 15,000 kilometers
- Private use only
- Electing a three-year term
Salary Comparison
Gross Income $80,000.00 $80,000.00
Pre-Tax Deduction $0.00 -$9,829.82
Taxable Income $80,000.00 $70,170.18
PAYG Income Tax $18,067.00 $14,675.71
Net Income $61,933.00 $55,494.47
Employee Contribution $0.00 $6,638.94
After Tax Vehicle Cost $17,451.72 $0.00
Take Home Pay $44,481.28 $48,855.53
Estimated Savings $4,374.25
Based on the above example this employee could save $4,374.25 in tax each year by purely engaging your employer through OptIn to pay for some of the repayments and running costs on your car out of your salary before you have been taxed.
Contact Us
If you would like more information on how this might work for you why not contact one of our friendly staff on 1300 959 528 or info@optinaustralia.com.au
