A novated lease is usually best known for helping individuals pay for a car while reducing their taxable income and paying less income tax. What you might not know is the overall cost-effectiveness of a novated lease is significantly boosted by GST savings.
How do GST novated lease savings work?
You’ll save money in GST on a novated lease based on both the upfront purchase of the vehicle you lease and the ongoing running expenses. Here’s how:
Novated lease GST saving on vehicle purchase price
There will be a GST discount on the purchase price of the vehicle you choose for your novated lease. That’s because under a novated lease, you do not purchase the vehicle initially.
Instead, the company providing the lease finance purchases your choice of car on your behalf. The finance company can claim a credit for GST paid on the purchase of the vehicle. Effectively this means your novated lease payments are based on the purchase price of the vehicle with a large GST discount.
In other words, the GST discount the finance company can claim on the vehicle is passed on to you.
The maximum novated lease GST discount on the vehicle purchase price is $6,191 for the 2023/24 financial year. The means vehicles valued up to $68,108 are effectively GST-free. For vehicles valued above that, GST will only apply to amounts above $68,108.
Novated lease GST saving on packaged car running costs
One of the other benefits of a novated lease is that there’s also GST saving on car running costs you salary sacrifice. With a novated lease, most related costs like fuel or charing, insurance, servicing and rego can be packaged as part of your lease. You pay for them through the single regular payments that’s deducted from your salary.
Again, because you are not purchasing these items yourself (they are technically paid for by your employer as part of your remuneration) there is a GST discount. Effectively that means a 10% saving on eligible car running costs you salary sacrifice as part of your novated lease pre-tax.
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Novated lease GST saving example
| Item | Amount |
|---|---|
Standard vehicle purchase price | $73,555 |
Up front novated lease GST discount | -$6,191 |
Weekly lease cost (includes car running costs) | $263 |
GST discount on lease package | $36/week |
Total GST saved on your car running costs over 5 years | $1,879 |
Total GST saved over the life of the lease (car purchase cost and running costs) | $9,393 |
Why don't you pay GST on a novated lease?
The GST savings available for drivers are due to the unique way a novated lease works. It enables an individual to pay for a car for personal use, but through an agreement involving parties who are eligible to claim GST credits on eligible costs.
In other words, the purchases that would otherwise include GST are made on your behalf, and the GST discount is passed on to you.
The potential GST savings are the same whether your novated lease is facilitated through your employer's preferred provider, or established as a self-managed novated lease.
Does that mean there is no GST on a novated lease?
While there are significant GST savings available through a novated lease (potentially thousands of dollars during the lease term), there are some circumstances when GST may apply.
- If the purchase price of the vehicle is more than $68,108 (for the 2023/24 financial year), GST will be payable on the purchase price above that amount.
- GST will apply as normal on any costs (e.g. running costs) covered using after-tax salary as part of your novated lease. These are costs apid for using the employee contribution method which is designed to offset fringe benefits tax (FBT) on the lease. However, for FBT-exempt leases, 100% of your lease costs can be made pre-tax with a GST discount. This is the case for eligible ev novated leases.
- The residual value of your novated lease will include GST.
The important thing to remember is that a novated lease is generally the only way for an individual to pay for a car with any sort of GST discount.
It’s one of the the main sources of savings for a novated lease versus a car loan, or even a novated lease vs buying the car outright with cash. Paying for a car through these other methods typically does not deliver any GST saving.
Get the best deal on a novated lease
Find my best dealWritten by
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CEO
Bevan Guest
Reviewed by
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Editor
Sean Callery
