The Truth Behind The Novated Lease Agreement – You Won’t Believe This
Taxes and tariffs have been around for thousands of years. Without taxes, community, town, and state populations essentially freeload from their immediate areas of living, travel, and activity.
Governments all around the world, to this day, take taxes from their constituents to furnish roads, running water, electricity, Internet, government-backed healthcare, and countless other communal goods and services.
If Taxes Are So Important, Then Why Don’t Novated Lease Deals Get Taxed?
In Australia, some employees are offered a Novated Lease by Stratton Finance, by which the:
- Employee selects a vehicle he desires to lease, and takes a cut to his salary to afford the vehicle on the novated lease.
- Employer fills out and files all paperwork to secure the employee’s vehicle, and automatically deducts payments from the employee’s salary.
- A financial institution accepts payments from the employer, keeps great records of how much money has been remitted, and does anything and everything else financial.
So, where does this tax thing come into play? The employer takes monthly remittances towards the outstanding balance from pre-tax income.
A Quick Math Problem To Explain
Not so much a “problem,” but more of an explanation.
Assume your income is $47,000. You seek out a one-year novated lease through your employer that costs $10,000. Because the novated lease is taken out of your annual salary prior to taxes being deducted, your total taxable income is only $37,000.
If you chose to do something else with that money, $47,000 would have been taxed. Let’s check out the difference.
$47,000’s tax = $3,572 + (10,000 * 0.325) = $6,822
$37,000’s tax = $3,572
Would you rather pay $6,822 without a novated lease, or $3,572 with a novated lease? Oh, and all expenses you’d typically incur – tires, gasoline, etc. – are paid tax-free, as well.
Let’s assume another example: the vehicle costs the same, but the income we’re going to earn in one year’s time is $77,000.
$77,000 – $10,000 = $67,000’s tax with novated lease = $13,322
$77,000 – 0 = $77,000’s tax without novated lease = $16,572
Although the difference isn’t as substantial between a Car Loans by Stratton Finance, you’ll always find that a novated lease is a much better deal than leasing a vehicle without your employer’s help.
Some Other Benefits
Employees are statistically more likely to serve their employers longer if they’ve offered their workers a novated lease deal.
Organizations pay next to nothing to initialize novated leases, which is far cheaper than funding other popular benefits like health insurance and paid time off.