When it comes to novated leasing, most Australians think of leasing a brand-new car, but did you know you can also take advantage of novated leasing for used cars?
This option offers the same tax-saving benefits while giving you the flexibility to choose a pre-owned vehicle, which can be a more affordable alternative.
Let’s breakdown how novated leasing for used cars works, its benefits, and whether it’s the right choice for you.
What Is a Novated Lease?
A novated lease is a salary packaging arrangement between you, your employer, and a leasing company. Your employer deducts the lease payments from your pre-tax salary, reducing your taxable income and saving you money on taxes. The lease payments typically cover all the costs of the car, including registration, insurance, maintenance, and other running costs.
While novated leasing is more commonly associated with new cars, the same system can apply to used cars, providing even more flexibility and potentially lower weekly/fortnightly/monthly payments.
How Does Novated Leasing for Used Cars Work?
Novated leasing for used cars works in much the same way as it does for new cars. Here’s a step-by-step breakdown:
1. Choose Your Used Car
You can select a used vehicle of your choice, typically within a certain age and km range set by the leasing provider. Most leasing companies have guidelines on the maximum age (often around 7-10 years old) and the number of km the car should have on the odometer.
2. Lease Payments Deducted from Pre-Tax Salary
Just like with a new car lease, your employer will deduct the lease payments from your pre-tax salary, lowering your taxable income and allowing you to benefit from the tax savings that novated leasing offers.
3. Bundle Running Costs
The lease typically bundles all running costs, such as insurance, registration, maintenance, and repairs, into one payment, which is also deducted from your pre-tax salary. This means you’ll be paying for these expenses with pre-tax dollars, further reducing your tax liability.
4. Lease Term and Residual Value
The lease term is typically between 2 to 5 years. At the end of the lease, you can either sell the car, upgrade to another vehicle, or purchase the used car by paying the residual value.
What Are the Benefits of Novated Leasing for Used Cars?
1. Lower Lease Payments
One of the most significant advantages of leasing a used car is the lower cost compared to a new vehicle. Because used cars are less expensive, the lease payments are typically lower than leasing a brand-new car, allowing you to drive a quality vehicle at a more affordable price.
For those looking to maximise their savings or stay within a budget, using this fonance for a used car offers a great way to access the benefits of salary packaging without the higher costs associated with new cars.
2. Tax Savings
Just like with new cars, novated leasing for used cars allows you to take advantage of tax savings. Because the lease payments are deducted from your pre-tax salary, your taxable income is reduced, lowering the amount of income tax you pay each year.
This tax-efficient structure means that even if you’re leasing a used car, you’ll still enjoy significant savings on your tax bill.
3. GST Savings
Another key benefit of novated leasing for used cars is that you don’t have to pay GST on the purchase price of the vehicle or on running costs like insurance and maintenance. This can save you close to 10% on the total cost of the car.
4. Lower Depreciation Impact
New cars typically experience the most depreciation within the first few years of ownership. By leasing a used car, you avoid this steep depreciation, as the previous owner has already absorbed the initial drop in value. This can be an advantage when it comes to the residual value, as the depreciation curve tends to flatten out for used vehicles.
5. Flexibility to Upgrade
At the end of the lease, you have the flexibility to either upgrade to another vehicle, sell the car, or pay the residual value to own it. If you choose to upgrade, you can select another used or new car to lease, giving you the freedom to drive the car that suits your needs at the time.
Things to Consider When Novated Leasing a Used Car
While novated leasing a used car offers many benefits, there are a few factors to keep in mind:
1. Vehicle Age and km Restrictions
Not all used cars are eligible for novated leasing. Most leasing companies have restrictions on the age and km of the vehicle. Typically, the car should be under 7-10 years old and have less than 100,000 km on the odometer when the lease starts. Be sure to check with your leasing provider about their specific requirements.
2. Residual Value
The residual value at the end of a novated lease is the amount you’ll need to pay if you want to own the car outright. For used cars, the residual value may be lower than for new cars, but it’s still important to consider how this will fit into your financial plan.
If the car’s residual value is higher than the market value at the end of the lease, you may need to speak to your novated leasing consultant about the best way forward.
3. Higher Maintenance Costs
While used cars are generally less expensive to lease, they may require more maintenance and repairs than new vehicles, depending on their age and condition. These costs are typically covered in the package, but it’s important to factor this into your decision when choosing a used car for novated leasing.
Is Novated Leasing a Used Car Right for You?
If you’re looking for an affordable way to drive a car while still enjoying the tax savings and flexibility that come with novated leasing, then leasing a used car could be a great option. It’s particularly beneficial for those who want lower lease payments or wish to avoid the steep depreciation of a new car.
However, it’s important to consider the age, km, and potential maintenance costs of the used car you choose. As long as the vehicle meets the leasing provider’s criteria and aligns with your budget and needs, a novated lease on a used car can offer significant savings and flexibility.
Novated Leasing for Used Cars – A Cost-Effective Option
Novated leasing isn’t just for new cars. With a used car novated leasing, you can still enjoy tax savings, lower running costs, and the flexibility to upgrade at the end of the lease—all while benefiting from lower monthly payments. For those who want the financial benefits of novated leasing but prefer the affordability of a pre-owned vehicle, this is an excellent option to consider.
If you’re interested in exploring novated leasing for a used car, contact CarBon Novated Leasing today to find out how you can get started.
