If you’re unsure of the meaning of Novated Leasing or Salary Sacrifice, it’s a three-way finance arrangement between you, your employer and the lease company, which is usually at your employer’s choice. A Novated Lease agreement or Salary Sacrifice agreement means the employer is responsible for an employee’s car lease payments, using a portion of the employee’s pre-tax salary. This type of lease allows the employee to drive a desired vehicle without paying for it directly, as the employer takes on the responsibility for the payments, reducing the employee’s taxable income. Since part of the payment gets deducted from your pre-taxable income, you can save on the tax you pay, the amount of which depends on your tax bracket. You save the upfront cost of GST as it’s deducted, and you get a fuel card, vehicle maintenance and comprehensive insurance all included! So convenient! Or is it? Now that you understand the meaning of Novated Leasing and Salary Sacrifice and its purpose, let’s jump into the potential downsides.
The downsides of a novated leaseWhile Novated Leasing means you can purchase the car you want upfront using a portion of your taxable income, a novated lease is a financial commitment that should be carefully considered before entering into one. It can have long-term implications for the employee’s salary and taxes. The downsides of a novated lease Or Salary Sacrifice include:
- Limited flexibility — Signing a novated lease means limited flexibility in terms of the car’s make, model or even the lease’s length.
- End of lease costs — At the end of the lease, you may have to pay additional charges such as balloon payments, resale value guarantees or disposal fees.
- Risk of vehicle depreciation — The vehicle’s value can decrease over time, and if it falls below the residual value, you may be required to pay the difference.
- Salary packaging limits — Using a novated lease means a cap on the amount you can salary sacrifice will be imposed by the Australian Tax Office. This can place a restriction on the car you can afford to lease.
- Personal credit check — Your credit history will be checked before entering into a novated lease, meaning a poor credit history could impact your ability to secure a lease.
- Responsibility for maintenance — You are responsible for the regular maintenance and upkeep of the vehicle, which can hinder your lifestyle if you are time-poor. Plus, you could be charged additional fees if you don’t keep the vehicle in good condition.
Can Get My Refund help me claw back some of these costs?YES! Thankfully, this is where our industry expertise comes in! Our team of specialists at Get My Refund will help you find exactly what was added for you, and we can assist you with claiming back. The talented team at Get My Refund are experts in not only helping you understand what could be owed on your novated lease but give you general information on the details of your case. Here’s how it works:
- Easily and quickly apply online.
- We request your information from the provider on your behalf and analyse these details for you, to see if anything is owed
- We submit your refund claim(s).
- You get paid!