Novated Leasing with RemServ: A Comprehensive Guide
If you’re ready for a new car, chances are you’re looking at spending your hard-earned savings or taking out a loan.
Or perhaps you’re considering drawing down on your mortgage.
There is another option – and one that’s enjoyed by tens of thousands of Queenslanders each year – novated leasing.
Also known as salary packaging a car, a novated lease could be the smarter, quicker way into your next car that you’ve been looking for – whether that’s upgrading your existing model or making the switch to electric.
To help you determine whether it is indeed the right choice for you, we’ve pulled together a comprehensive guide to all things novated leasing.
So, How Does Novated Leasing Work?
A novated lease is a three-way agreement between an employer, employee and a financier, and can last between one and five years.
The key differences between novated leasing and other forms of finance is the ability to pay for the car and some of your running expenses with pre-tax dollars; the potential to save GST on the car’s purchase price as well as some running costs; as well as spreading the car’s expenses over the course of a year rather than have to stump up cash for big bills like registration when they fall due.
A novated lease with a leading provider like RemServ also gets you access to some of the best deals and manufacturers across the country – unless stipulated by your employer. In most cases, you’re free to choose the car you wish to lease – whether it’s petrol or electric, or a new, used or even your existing car.
Potential Tax Savings
With its unique employer-employee-financier arrangement, a novated lease allows for your payroll department to deduct an agreed amount from your earnings to cover the car’s finance repayments and running costs.
But because some of this money is taken before you are taxed on it, you don’t have to pay income tax on that portion of your income (with eligible electric and plug-in hybrid vehicles, all your payments could be pre-tax). This could reduce your taxable income – and mean more money for you to spend on other things.
Because a novated lease is treated by the ATO as a benefit outside normal cash salary or wages, it is subject to what is known as Fringe Benefits Tax (FBT). To help offset the FBT liability, your deductions can be set up to include a portion of post-tax salary. This is known as the Employee Contribution Method (ECM). The ECM reduces the taxable value of the car, and in turn covers your FBT obligations in full. (Eligible electric and plug-in hybrid vehicles up to the Luxury Car Tax (LCT) threshold of $89,332, however, are FBT-free.)
Car expenses pop up throughout the year – and often when you least expect or want them. With a novated lease, your selected maintenance and running costs are conveniently budgeted for with funds set aside from your salary each pay. These can cover costs such as:
- Lease Payments
- Car washes
- Electricity (for EVs)
Before your lease begins, we’ll work with you to nominate your annual running costs, the total of which is deducted evenly from your pay across the life of your lease. If you’re paid weekly, the costs will be spread over 52 pay runs; fortnightly, 26 pay runs; monthly, 12 pay runs.
As vehicle expenses occur, RemServ or your employer will arrange payment. If you’re spending more or less than the pre-budgeted amount for any of your costs – for example, if you’re not driving as much, so you need to lower your fuel budget – you can adjust your pre-budgeted amount at any time.
With a novated lease, you don’t pay GST on the purchase price of a new car. This may save you thousands in upfront costs you would otherwise have to pay (this could mean, for example, a saving of $3,000 on a car with a purchase price of $33,000!)
Fully Maintained vs Self-Managed: It’s Your Choice
There are a number of different types of novated leases, however the two most popular are Fully Maintained and Self-Managed.
Fully Maintained Novated Lease
With a fully-maintained lease, RemServ will assist you in all steps of the process – from sourcing the vehicle, to negotiating on price, to arranging finance and establishing a budget for your running costs. RemServ will also set up your pay deductions and arrange these deductions with your employer.
You may also be issued a fuel card, so you don’t have to worry about getting reimbursed for fuel. You’ll also have the peace-of-mind support of RemServ’s experienced maintenance team dealing with your mechanic directly when it’s time for a service, to ensure costs and work undertaken are fair and reasonable.
Self-Managed Novated Lease
As its name suggests, this type of lease means you’re responsible for the day-to-day management of the car. You’ll have to source the vehicle and conduct any negotiations with dealers yourself. You’ll arrange your own finance and insurance and set your own budget for all the running costs for your vehicle. You’ll also need to complete the required paperwork, set up payroll deductions and coordinate the establishment of the novated lease with your employer or salary packaging provider.
You have a number of options at the end of your lease. These include:
- Trading in your car and using the proceeds to pay the residual amount (more about this below), then begin a new lease on a new car.
- Re-leasing the car – that is, begin a new novated lease to pay the residual amount. You keep the car you have on lease and RemServ works with you to establish a new lease and budget.
- Pay the residual amount and keep the car.
- Sell the car and pocket any excess funds from the sale after paying the residual amount.
It’s legislated that there must be a ‘residual – or “balloon” – payment at the end of the lease. This means that you don’t make lease payments for the whole car amount over the term of a novated lease. The amount that you don’t pay is the residual, and this is owed at the end of the novated lease.
The Australian Tax Office stipulates the percentage of the residual based on the term of the lease. For example, if you have a novated lease for four years, with a car finance amount of $30,000, the minimum residual is 37.5% or $11,250.
You Could Get a Great Deal
As one of Queensland’s leading novated leasing providers, RemServ has an extensive network of preferred dealers to tap into to help you get a great car deal. Check out our Vehicle Offers page, or give one of our consultants a call to see what we can do for you.
Crunch the Numbers for Yourself
If you’ve got a ballpark figure for what you want to spend on a new car, RemServ’s novated leasing experts are ready to crunch the numbers and see which popular makes and models match your budget. Or you could put our novated lease calculator to the test to see how a novated lease might cost (or potentially save) you.
Novated Leasing with RemServ
Novated leasing can seem complex, but that’s why RemServ are here: to handle the complexity for you. Want to know more about novated leasing? You can read our FAQs here. Or if you’re ready to set the wheels in motion, contact us.
Disclaimer: This website contains general information and doesn't take your personal circumstances into account. Seek professional independent advice before making a decision.