Salary Sacrificing or Salary Packaging is the ATO-approved method of paying for a car and its associated running costs using pre-tax salary contributions.
A novated lease is the name of the finance product that an employee “salary packages”.
Novated leasing of vehicles has been around for just over 3 decades with the largest uptake seen initially in Government and Health Departments. Novated leasing is now provided across Defence, Health, Education, and most Government Departments.
As the knowledge of the product spread, Corporate employers began to switch company vehicles to novated leases to free up capital and reduce the need to pay “fringe benefits tax” (FBT) on the vehicles. FBT is paid at the highest marginal rate of tax.
Electric vehicle novated lease
The Electric Car Discount Bill passed parliament on the 28th of November 2022. The federal government amended the “Fringe Benefits Tax Law” to allow eligible electric vehicles to be paid for 100% pre-tax and exempt from FBT.
This exemption includes electric vehicles priced up to $89,332 (inc GST) for the 2023/24 financial year.
The bill includes an exemption for plug-in hybrid vehicles until 1 April 2025.
It's also important to note that electric vehicle uptake and the exemption for EVs are scheduled to be reviewed by the ATO by mid-2027.
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Buyer comparison: paying cash vs. novated leasing
Is paying cash cheaper than a novated lease?
In the below, we compare the person who took out a novated lease for a Tesla over 5 years versus someone paying cash for the car and the identical budgeted running costs.
Details: an example based on a $90,000 Gross Annual Salary and Salary Sacrificing a Tesla Model Y (RWD) registered in Victoria, plus estimated travel of 15,000 km per annum over the course of a 5-year novated lease.
Novated lease
Novated Lease Out of Pocket Costs plus Residuals (Balloon Payments): ($247.99 per week x 52) x 5 = $64,477.40
Residual Value at the end of the Novated Lease: $20,099.00
Total Cost of Novated Lease: $64,477.40 + $20,099.00 = $84.576.40
Paying cash
Tesla Model Y (RWD) Drive-Away Price (registered in Victoria): $71,064.00
Identical Running Cost budgets to novated lease: $23,306.14
Total Cash Cost: $71,064.00 + $23,306.14 = $94,370.32
Try our free novated lease calculator to see what you could save!
How is this possible?
The tax savings in a novated lease can be so great that it results in being cheaper than even paying cash!
Here is a summary of those tax savings.
GST Savings off the Purchase Price of $6,109.99 in this example*
GST Savings on the running costs*
($37.80 per week x 52) x 5
$9,828 GST saving over 5 years.
Income Tax Savings*
($130 per week x 52) x 5
$33,800 income tax saving over 5 years.
Salary sacrifice calculations
In a novated lease we bundle together the finance and the expected running costs of the vehicle into one convenient payment. The reason we include the running costs is to allow an employee to obtain a tax benefit on costs they will incur for their vehicle.
The salary package helps you maximise your take-home pay.
Budgets
The ATO has introduced a “shortcut method” allowing drivers to claim 4.2c per km for charging their EV. (equalling 15,000km x $0.042 = $630p/a or $12.12 per week)
The Easi salary packaging account is a central account where an employee contributes pre-tax money into each pay and then spends the money they have accumulated on vehicle expenses.
All budget line items are flexible and each individual works with a novated lease specialist to “tailor” them to their requirements. The goal is to pay for the vehicle expenses you will have and obtain a tax benefit on them.
Comprehensive insurance can be done through fleet or a driver can elect to any retail insurer of their choosing.
The budgets can be adjusted at the start and during the lease as driving habits change. For example, if someone started to drive more, we would assist them to tip in more money into the lease account to cover the actual costs. The same if they drove less, they could contribute less to the salary package.
At the end of the lease, any funds not used are returned to the employee – with a car lease you only pay for what you spend.
Budgeted items include:
EV Charging
Vehicle Servicing
Comprehensive insurance
Replacement Tyres
Roadside Assistance
Registration Renewals
Get your next electric vehicle through a novated lease from easi
Whether you work in state government (ACT Government, WA Government, NT Government, QLD Government, SA Government, NSW Government, TAS Government) or for a local government council, Easi can help. Contact us today to get started on your EV novated leasing journey!
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