Novated Leasing and Salary Sacrificing: Pros and Cons
Is salary sacrificing a car worth it?
This is a question that employees, business owners and HR managers around Australia ask everyday.
If you’re considering going down the novated leasing road, then you might have asked friends, colleagues, family and even Reddit if salary sacrificing a car is worth it. And if you’ve done that, we understand that you might be more confused than before.
We’re here to help you.
Here’s the short answer to whether salary sacrificing a car is really worth it. Are you ready?
It depends.
Novated leasing, the most common way Australians salary sacrifice a car, can be an appealing option for both employers and employees. However, like any financial decision, weighing the benefits against potential drawbacks is crucial.
Pros of salary sacrificing a car
Tax savings
Salary sacrificing a car through a novated lease agreement has the potential for serious tax savings.
Lease payments come from your pre-tax income. That includes all running costs which you otherwise pay after tax is deducted.
Reducing your pre-tax income reduces your taxable income. Not only will you pay less tax, but you will also pay less for running costs.
Depending on your income, repayments and salary packaging arrangement, that can mean more money in your pocket every month. It certainly means smoother budgeting and no surprises that hurt your hip pocket.
Access to your ideal car
A new vehicle is a significant investment. (With the price of cars in Australia, even a decent used car is a big financial decision).
Unless you have tens of thousands of dollars in savings, you are likely faced with three options:
The choice is ultimately up to you, and we strongly recommend seeking financial advice before making a final decision.
That said, a big benefit of partnering with Fleetcare to salary sacrifice a car is access to our national supplier network.
We can help you get the car you want, often for a lower price. That includes new vehicles, EVs (electric vehicles) and quality used cars. It even includes kitting out your car with accessories.
Compared to buying as a private individual or taking out a high-interest loan, leveraging our fleet buying power can make salary sacrificing a car worth it.
Lower running costs
Novated leases bundle all your car’s running costs into one simple pre-tax payment.
As a Fleetcare novated lease customer, you pay no GST on those running costs. Yes, including fuel – that’s an automatic 10% saving on your weekly fuel costs.
That means you pay less upfront and encounter no unexpected out-of-pocket expenses for fuel, maintenance, repairs, registration, insurance, 24/7 roadside assistance, new tyres or even crash assistance (although we hope you never need it).
You can also source your own insurance. We’ll include it in the budgeting so you’re never out of pocket.
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Financial responsibility
Salary sacrificing a car is a great way to build and demonstrate financial responsibility. Although there is a commitment to regular lease payments, they are deducted from pre-tax income, which softens the immediate financial impact.
For employees, that means smoother budgeting and less stress.
For employers, novated leasing can serve as a retention incentive for employees who value the financial benefits and convenience it offers. Including novated leasing in your benefits package can also make you a more attractive employer, which is crucial in today’s tight job market.
Cons of salary sacrificing a car
Residual value payment
Leases don’t last forever. At the end of your agreement, you can trade in, trade up, refinance the residual value for another lease term, or pay out the remaining value and own the car outright.
If you choose to own the car at the end of the lease, you’ll need to pay the residual value. That balloon payment represents the estimated remaining value of the vehicle, accounting for depreciation and all the rest.
Budgeting for this lump sum can be challenging. Our novated leasing quote is transparent, so we’ll provide you with a residual amount before you sign on the dotted line.
However, if you’re still asking yourself, “Is salary sacrificing a car worth it?” you have plenty of time to seek financial advice and budget for this payment.
Depreciation risk
When you opt for a novated lease, you also agree to shoulder the vehicle’s depreciation over the lease term.
This depreciation is influenced by various factors, including:
Naturally, this financial responsibility demands consideration. Although the price of used cars is high at the moment, it might not stay that way. It’s helpful to prepare for the reality of a depreciated car.
On the flip side, depreciation is factored into residual balloon payments. So, if you opt to own the car outright at the end of your lease, you won’t need to budget for the full price.
Is salary sacrificing a car worth it for you? Expert advice from Fleetcare
Salary sacrificing a car offers compelling advantages, from tax and cost savings to the simplicity of bundled vehicle expenses.
However, these benefits come with responsibilities and risks.
So, is novated leasing the right choice for you?
Let’s face it, you’re not likely to get the most reliable financial advice from asking, “Is salary sacrificing a car worth it?” on Reddit.
Family and friends can help you decide, but there’s still the missing piece. That’s expert advice from a novated leasing specialist.
Fleetcare is Australia’s leading independent fleet management and novated leasing company. We’re committed to building the best financial solution for you.
Our team can help you understand the pros and cons of salary sacrificing a car so you can be fully informed about the considerations before seeking financial advice.
Call us on 134 333 or contact us online to start a conversation.
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