She's On The Money - How Does Novated Leasing Work?

Episode Date: September 19, 2023

What is a novated lease, how does it work, what should you consider, and what are some of the pros and cons of this arrangement? Today's episode is full of tips to help you make the best decision when considering whether novated leasing is right for you! Acknowledgement of Country By Natarsha Bamblett aka Queen Acknowledgements. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.  Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708,  AFSL - 451289.See omnystudio.com/listener for privacy information.

Hello, my name is Natasha Nabanunga-Bamblett. I'm a proud Yorta Yorta, Kernai, Wolperi and Awadjeri woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on Awadjeri country, acknowledging the elders, the ancestors and the next generation coming through. As this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow. Let's get into it. She's on the money.

She's on the money. Hello and welcome to She's on the Money, the podcast for millennials who want financial freedom. My name is Bec Syed and Victoria Devine is with us to talk about something many of you listening will know about, but I don't know anything about. Novated leasing. Hello, my friend. Today, yes, indeed, we are going to run through what it is, how it works, the pros and cons, and so much more. I feel like we get so many DMs on a regular basis of you being like, hey, my work, it offers novated leasing. Should I do it? And I'm like, well, I can't answer that. But you know what I can do? What? Do a podcast. Ah, let's do it.

It's the only thing we've got going for us at this point in life, Bec. I'm happy about that, actually. What is a novated lease? So a novated lease is a way that you can finance a new or used car. You can make your repayments from your pre-tax salary, which is why so many people find it's so damn attractive, with approval from your employer under what's called a salary sacrifice arrangement. This can effectively reduce your taxable income. It also allows you to bundle your vehicle's expenses into one simple payment. Oh, okay. Yeah, I'm so in. You're like, I would love that. So how does an evaded lease work?

So what you'll do is you'll find a new or a used car that you want to purchase. You'll decide whether it's good. I can't help you with that as to what a good car is. You enter into what's called a lease agreement with a finance provider or a bank. You then enter into what's called a salary sacrifice arrangement with your employer to cover the car lease with repayments coming from your pre-tax salary. You can also sometimes include car running costs in your lease. So things like servicing back and petrol, which is very attractive because you know what's really expensive? Petrol.

Very true. I don't even want to talk about it, how salty I get with how expensive it is. I know. To fill up my entire tank, which is a privilege in itself. I know. Disgusting. So expensive. Disgusting.

Anyway, then your employer makes repayments to your finance provider on your behalf from your pre-tax salary. Sure. But if you change jobs, you take the car with you and continue to make repayments directly or you transfer your agreement to your new employer. So there's a bit of admin involved. And if you transfer it to your new employer, you have to make sure that your new employer approves it. Okay. And there's the probability that they might go,

oh, I'm so sorry, Bec, we don't offer that. Sure. Which is okay because they don't have to offer that. I wonder about credit checks. I'm sure we'll get to that at some point. What do you mean? Of course there's a credit check. You're taking out a line of credit.

Absolutely there's a credit check. But the employer's paying them. Yes, but it's in your name coming from your income. I'm out then. Yeah. Yep. So your employer also pays money into your account from the top. What would happen is you've got your salary that is allocated towards you. Your employer already takes out your tax and pays that on your behalf. So you don't have all of the money coming into your account and then you pay

tax like a business would. So you pay your tax. They would allocate superannuation to you. They would also allocate the money that goes into your take-home salary, which gets transferred to your bank account. And then this would be an additional add-on where they actually slice some of your take home salary off and transfer it to pay off your car lease. Gotcha. So it's not as though the lease agreement is with them. What happens is the lease agreement is with you, but the agreement is that your employer uses your pre-tax salary, which means it can't come through your bank account. Right. Okay. I'll clear that up. Yeah. But just for the sake of people listening, can you give us an example? You're like, oh wow, yeah, I get it. But give us an example.

Yeah, just in case someone doesn't understand. You're like, if somebody that's clearly not me doesn't get this. All right. So let's use the example of a $70,000 before tax salary, right? And your novated lease payments, they come to $10,000. This means that your quote taxable income becomes $60,000 if you pay all your novated lease payments from your pre-tax salary. So what you actually declare to the tax office and pay tax on is $60,000 instead of the $70,000, which is arguably very sexy. This means you'll obviously pay less tax over that year, which is why so many people are attracted to novated leases. Your finance provider or an accountant can obviously help you work out the potential savings and other things you're going to need

to consider before entering into a novated lease based on your personal circumstances. So obviously I keep saying it's really sexy and I really need to get a better descriptor, but I have none and I lack a lot of creativity. So we're just going to keep calling it sexy again and again. But that means obviously you're reducing the tax that you pay. But another sexy option is that it could drop you down a tax bracket. So if you're sitting on what's called a cusp, which is where we know that the average marginal and most common marginal tax bracket in Australia is between $45,001 to $120,000 per annum, which means you pay $5,092 in tax plus $32.5 in every dollar over $45,000 earned. That means that hypothetically, Bec, if you

earned $20,001, it would mean that you fall into the tax bracket of paying $29,000 in tax plus $0.37 in every dollar, which is different to the $5,000 plus $32.5. That's a lot of a difference. It means that if you then maybe used a structure like this on your $20,001 salary and you had novated lease payments of $10,000, you would actually drop to having a taxable income of $110,000, which actually takes you back to that 32.5 cent tax bracket. Gotcha. Which could be very attractive and obviously only works in very specific circumstances where, you know, you are on that cusp, you're just over and the payments that you're making on an ovated lease actually take you down a tax bracket.

But it's definitely worth looking into. Yeah. Like if it makes sense for you and your personal circumstances. So if it's a lease, is it like a real debt? That is a very good question. Thank you. Yes, it is. And I think that that's where we need to really talk about it.

I've called it sexy multiple times because that's really attractive, right? It's pre-tax. Right. We can buy a bigger, better car, Bec. We can all go get Land Cruisers. Do we need Land Cruisers? No. You live in the city.

You don't need a Land Cruiser. You don't even go four-wheeling. Like, that's not an option. But your mate has one, so you need one. And do you know what? I guess my work. They offer no vated leasing. It's a slippery slope of making a decision because you're justifying that it's a good financial decision.

Yeah. Because you're like, well, it's pre-tax. That's very attractive. And it means I could get a more expensive car. And the money would go further. And you're not wrong. but any debt that is not creating wealth for you is a bad debt. So I would look at an ovated lease as a bad debt. I don't see it as a good debt. I see it as something that is not helping you

create future wealth. And I mean, there is the argument that the car could be worth more when you come to like get rid of it or dispose it. I don't give two flying flippers. I kind of look at it and go no at the end of the day a car is a depreciating asset yeah and I would hate for people to justify buying more or spending more because ultimately that impacts your take-home income and that ultimately impacts your ability to invest and save and create financial freedom and as much as you can justify it and be like oh we need this we need that like you arguably don't right okay like it is a luxury to afford a brand new car yeah even now I'm looking at purchasing a new car back. And, you know, Steve and I are in a financial position where we could afford a

brand new car. I could go and get a lease on a brand new car tomorrow. I can't think of anything worse. I will not be buying a car on finance. Is it a good financial decision? Sometimes, yeah, a car lease, especially as a business owner where it can be in the business, right? Like, I could novate lease my own car. I'm terrified of bad debt because I'm not responsible. I can't be held responsible, Bec. So at the end of the day, you've got to know yourself as well as know the structure. And it's like credit cards, right? Some people are really good at managing credit cards and they use them for cycling through points and they get all these business class flights. Like we've spoken about Brooke before on the podcast, who is one of our team members.

She like stealths credit cards. Like she is the queen of making sure that she's getting all of the sign-on bonuses and then disposing of the credit card or using them in really constructive ways. I'm going straight to Lululemon if you give me a credit card. Cannot be trusted, Bec. And that's where you should look at an ovated lease and go, well, actually, is this a good financial decision? If you need a new family car and it's something where you go, Bec, we've been meaning to get it, like the only option is going to be, you know, a car loan, that's fine. This could be a really, really valid option that actually puts you in the best financial position for taking on debt for a car sure and that's great but it's still debt for a car and we need to see it as

that not some shiny benefit that your business offers and you can absolutely take advantage of it yeah because i think a lot of businesses use it as a shiny upgrade like oh well if you're signing on back hundred thousand dollar salary package oh and we do no vated leasing like okay that is great if it applies to your circumstance but more often than not it's just a way to keep you in debt. Right. Okay. We keep saying lease, but if you do a novated lease, does that mean you own the car? No. Oh, okay. Well, the finance company owns the car. You are then leasing the car from them. Sure. Do you actually ever own the car, Bec? Well, technically, no, while you're running a novated lease. In fact, you don't actually want to own the car because all your

tax benefits would completely disappear. You want the finance company to own your car. Okay. So So it sounds good, but it doesn't necessarily mean it is. I see. So this kind of sounds like a hack to get a new car every three years. That is what a lot of people think. So a lot of people go, all right, well, I'll get a novated lease. You never own the car. I'll pay my novated lease payments.

And then in three years, once I'm done that lease, what we'll do is we'll go back down to Toyota. We'll get a new car, put that on a novated lease and start the cycle again. So you never actually ever own a car that you're paying off. Right. It sounds really tax effective, but you're leasing it instead of paying the car off completely. Sure. There are certain circumstances where when your novated lease has expired, you can purchase

the car for a discounted rate, and it ends up being okay, and it would then move into your personal name and not have the tax advantages that it previously had. However, have people got rocks in their head? Nobody in their right mind needs a new car every three years. Controversial opinion. I hope my friends aren't listening to this episode because I've got a couple of them that literally get a new car every three years because they're like, oh, it's three years old.

I've got to get rid of it. My car's from 2006. I've been driving it since 2011. You'll have to pry it from my cold, dead hands. And I've been talking to my husband. The only reason that I would feasibly get rid of it is because it's a two-door coupe because like when I bought it, I thought I was so cool. I thought I was so cool.

That's very cute. I bought it at university and, like, hot stuff. Two-door coupe, all on debt, obviously. Of course. All on debt, but I had my two-door coupe and I was very excited about it. I still love her a lot, but the only reason I'd get rid of that is because a two-door coupe didn't suit our lifestyle anymore. Right, gotcha, gotcha, gotcha.

You know, putting baby seats in the back of a two-door coupe. That would be hell. It's not great. I mean, we could make it work technically, but I'm not that stubborn. That's obviously my personal opinion. You might think, oh, well, I actually do for these reasons, for safety reasons. Like you could come up with so many good debates to go, but V, yes, I do need a car every three years.

I've done all the maths. I've done this. I've done that. At the end of the day, a car is a depreciating asset. And if you have one and you completely pay it off and then you run it into the ground, that will arguably always, always, always be a better financial decision than you getting a new shiny car every three years. Yeah.

you can't argue that cannot argue that your values might be different and that's totally okay like that is so fine if you go but b i am such a petrol head i love cars cars are my thing like every three years i get a new one i am so car proud like you're the dude or the chick down at the car wash every saturday morning like you got your little chamois buffing your car up like that's your favorite thing in the entire world you sacrifice other things in your life so that you can have that. I'm not going to argue with your values, but what I am going to do is make sure that you're as educated as possible. So, you know, the ramifications of the decision that you're making, and then you can still make it. That's fine. As long as you've got the education

behind you so that you go, you know what? I don't care. Like some things in life are wastes of money. Yeah. You know, what's a waste of money? My eyelash extensions. Am I still going to get them? Absolutely. Cause I feel real hot when I have them back. Absolutely. Does that mean that everyone always has to make the best possible financial decision? No. No. But you have to make it in line with your values and you have to be educated to know that the decision you're making might not be the best one, but it's the best one for you. Speaking of education, what are some of the benefits of novated leasing? With a novated lease, you can use your car for personal use, which is quite helpful. You don't just have to be using the car for like business or work

purposes, which I think is a common misconception. Your income, the cost of your car and ongoing running costs each year will actually decide how cost-effective a novated lease might actually be for you. The result will be that your taxable income is reduced. The benefits also depend on the way that your lease is actually structured, Bec. Some leases might package car expenses like registration and fuel and tires and insurance together, so your repayments cover all of these as well, whereas some employers may also allow you to pay part of your novated lease from after-tax which is called an employee contribution. If you're not on the highest marginal tax rate, this can actually be cost effective because fringe benefits tax, which is based on the highest

marginal tax rate, Bec, may not have to be paid to your employer from your pre-tax salary in addition to your novated lease repayments. Novated leases can effectively mean motoring costs are goods and services tax-free, so GST-free for employees. The GST you would ordinarily pay on the purchase price is covered by the finance provider and they can claim an input for tax, and GST, by the way, is 10%. If running costs are included in your novated lease, these can actually be packaged to employees with their lease payment without GST as the employer claims the tax component back as an import tax as well. I see. Okay. Just means, again, you know, how we talk about like franking credits and stuff where things

have little tickets on them to be like, by the way, this one's tax free, or by the way, it comes with a certain benefit. An input tax credit is the same as that, but it's for a business. Okay. So like GST is kind of like left pocket, right pocket. Like when you're a business owner, you pay GST and then you also get GST, but all the GST that you collect actually gets paid back to the government. so it's like I charge it but that doesn't come into play with my profit whereas for you Beck

as a consumer when you go to the shops and you buy a new drink bottle for example there will be a goods and services component that you pay sure but you can't claim that tax time this changes that circumstance so someone in the background is making the GST effective for you which is kind of attractive yeah I love that also last point on this like in the pros area is compared to other kinds of finance like a direct car loan, a novated lease gives you a few different options for what you do when the lease term ends. So you can pay off the residual so that you then own the vehicle like we were talking about before. You could renew the lease for a longer term either with the same vehicle or you could upgrade like you were explaining every three years, you could upgrade

to a new car. Or alternatively, you could sell the car and pay the residual off to the financer And then any profit you make is actually yours to keep tax-free. That's pretty cool. Yeah. Okay. Now, I know it's not all pros. No, no, no. We need to bring the mood in here down.

We do need to bring the mood down. What are some things we need to consider when it comes to novated lease? So the first thing I'd want you to consider is that if you are going to change employer or change your job or stop working, the responsibility for making the repayments, that still remains with you. Sure. remain with the employer you set it up with. You might be able to transfer your lease to a new employer if they actually offer novated leasing, and it is a bit of work to set it up. But you

might also want to just take over the repayments completely, which would mean that they are no longer pre-tax, they're now post-tax. But you can just keep paying off the lease. It just means it would be more expensive technically. Gotcha. When you have a car under a novated lease with your employer, the federal government considers it to be a fringe benefit. So then fringe benefits tax might apply. So while employers are liable to pay fringe benefits tax in the case of novated leases, this cost is generally then passed on to you to pay from your pre-tax salary because the employers are kind of like, well, this is all benefiting you. Why would we pay a different tax on your behalf when it's you incurring it directly because you wanted a car? It's also really

important to understand how this and any other financial implications arising from entering into a novated lease can impact you. So I guess my last point slash, it's not a con, but it's a point is if you're going to do it, please just talk to your accountant or a financial advisor or someone in the know so that you can look at all the personal pros and cons and what it actually means for your financial situation. Because as I said, I just think people get a bit like really excited about it because it's such an attractive option. And like, obviously, innovative leasing companies have spent a lot of money on their marketing to be like, Bec, this is such a tax effective thing for you. You're basically making money. And then

it does look pretty sweet. Yeah. But then you go down to Toyota or whatever. We're not sponsored by Toyota. I walk past a Toyota dealership most days. Yeah. So it's just like the one in my head. Anyway, you go down to Toyota and like maybe you had planned to get like, you know, the base model of like a Camry or something that makes sense for your financial situation then you're kind of like oh what's it matter like let's get the luxe version I deserve it yeah it's all in like the novated lease anyway sure doesn't matter does it back or come out in the wash no you're making financial decisions that ultimately impact your ability to create financial freedom and that's important to understand it's a really good place to go on a quick break a little quick break

after the break I have some questions about how the discounts work and many other things Sexy. Let's go. Okay. All right, V, we are back. Woohoo! I'm the only one excited to be back in this room. So I'm actually excited about this part, I have to be honest,

because we're talking about discounts. Yeah, I knew that would get you, so I put it right at the top. Hook, line and sinker. Don't say I'm going to do anything for you, honestly. What discounts can you get? Yeah, all right. So, as I said before, you're not going to pay GST on the purchase price of the vehicle, which is approximately $10,000.

So, this can save you, I've done the maths, up to $6,191 in the financial year of 2023-2024. Obviously, different financial years are going to be different. So, DIY your own maths if the year is different to when you are listening to this. Any car running costs that are included will also be GST-free. So, you're not paying GST on petrol, you're not paying it on servicing. Sick. it's like a little 10% discount right there. You'll be saving on income tax by making novated lease payments from your pre-tax salary. So, like salary sacrificing your car. And if

you're novating an electric vehicle or plug-in hybrid, see, this is where people are going to start justifying Teslas, Bec. Obviously, up to the luxury car threshold, you won't be subject to fringe benefits tax or FBT on your lease. So, as we said before, you could, if you buy a hybrid vehicle or electric vehicle. Sure. Well, there you go. Okay. So how do you salary package fuel and services? So this is called a fully novated lease. So there's like a novated lease and then there's like the fully novated lease. So sometimes you might just have the car, like it's up to you to get your insurance and pay for petrol and like your actual debit card. But the fully novated lease means that under that part, apart from paying for the car repayments, the employer would

normally pay for the car's running costs like fuel and maintenance and registration and car insurance and it's like then all combined into your lease repayment so it's a set figure every single month and then for fuel you get given what's called a fuel card so you might have heard of those before and it will depend on where you live as to what service stations you can go to fill up because you'll need to pay for fuel from your fuel card because it has the allocated pre-tax dollars on it. Okay, that's pretty fun. I wonder if you can slip in a cheeky little curly whirly while you're at the checkout. Yeah, or a little sausage roll. Oh, sausage roll. You go hard. I'm just wanting to get the 90 cent curly whirly. Do you think curly whirlies are still 90 cents? I

think so, yeah. I reckon it would be fair for them to still be 90 cents. Surely. If they're not, let's chalk. If they're not, I will still buy them anyway. And I just want to know, does this tie you to your employer? Yes and no. A novated lease is obviously only used by employees, which means the lease agreement is actually tied to the employee, not the employer. It's more about whether your new company is going to offer novated leasing, which means they would offer to pay your novated lease from your pre-tax income, which is obviously another admin hassle. It's something that not every single employer offers. and if you leave your job with a novated lease, the car will be what's called denovated and you're

going to make payments as you would with a standard lease from your own funds, so like from your post-tax income directly from your salary until you're employed again and pay a salary if your employer consents to, you know, putting your car on novated lease. Sure. And if you find a job with an employer who agrees to pay for a novated lease, you're going to be able to what's called renovate your lease and then continue to make payments as you did with your last job. So no, it doesn't tie you to your job. It's just the tax-free component might not be that attractive to you if you have to pay it for any period of time. Yeah. Yeah. Wow. So many play on words in this. Yeah. Sorry. I'm trying my best to be as clean and clear as possible. You're doing a great

job. I do want to know though, V, what happens when you get to the end of the lease or if you want to cancel it in the middle? So when the end of a novated lease happens, typically you have three different options. So you could pay the residual and then you own the car outright. Your tax benefits cease then because it's then owned in your personal name. It is your personal asset to run. Nobody else is going to be giving you some tax benefits for that. The second option, Bec, is refinancing the residual value to continue using the car. Let's pretend your three-year lease ended and you're like, okay, cool, but I really want to keep the car. Don't really want to pay it out because I either don't have the funds or actually still want the tax

benefits of it. Can I keep paying it off in the same way that I am? Let's, you know, do a longer lease period, renew it, same car, let's go. And it continues on. Or you could trade that car in and upgrade to a new vehicle and enter into a fresh lease agreement. And that's where I think it's a slippery slope. Because I look at it and I go, I know that it was like beneficial for the first couple of years because like you're paying off this car, rah, rah. But if you then renew it every single three-year period or, you know, you might have a five or a seven-year period. It really depends on like what agreement you've entered into. It's kind of like, you know, when we talked about a 30-year term on a mortgage and I'm like, all right, well, let's say you've

got a $500,000 house. Right. And at the end of your 30 years, Beck owns 100% of that property because you're paying your principal and interest off, right? So it gets to five years and you go and sit down with Kate, your Zella money broker. And Kate says, all right, well, let's refinance. Thankfully, Kate's really smart because she's the Zella money broker. And like, we literally care so much about your financial futures that we would never let you reset that term. Sure. We would always go, okay, instead of re-entering into a 30-year term, we're going to enter you into a 25-year term for this. We're obviously going to reset, you know, your interest rate, you know, bring it down a little bit, but we really don't want you to

have to redo that five years that you've already been paying your property off. So we're going to just set this term over 25 years so that in that same 30-year period, you're going to end up with 100% of this property. Okay. Whereas with car loans, if you get three years in and then you say, hey, Bec, one new one, going to go up great. You go back to the very start and you start paying off another car. Sure. You're never going to own 100% of that asset, yet you're paying thousands of dollars towards this asset for the privilege of driving it, but never fully owning it. I don't know. It's like a waste.

Hey, that's where we're trying to go. I see. I see. I see. I'm not saying it is a waste. It can be very constructive. As we've said, there's so many benefits to it. But I think we need to balance those benefits and go, well, actually, what's the ultimate

outcome? Sure. Because like, if I sit you down and go back, well, you know, you need a car and you go, yeah, absolutely. Like V, it's not an option. I have to get from A to B. i need a car i've looked at every other options and horse is not gonna work i can't ride a kangaroo to work every day like it's just not gonna work okay all right non-negotiable beck acquires car

yes but beck what's the long-term goal with that car like you're gonna have to get from a to b yes i guess for the next 30 or 40 years because you're gonna keep working right so car might be completely necessary you drive to sydney a fair bit so like that's important that you have access to a car so it's not that you're going to have the car for the three years. Right. You're hopefully going to be a car owner for the rest of your life or as long as your license allows you. You know what I mean? Like, why are we only looking at the first three years when, you know, tax efficiency means that, yes, it is the most beneficial tax option in the short term. But in the long term, is it not better to buy one car, pay it off completely and have these costs coming out of your post-tax

income and not be paying a consistent lease for a brand new vehicle? Yeah. So I think it's just really important to understand why we might make these decisions in the short term and in the long term. Like you might go, you know what, I've looked at this and a novated lease really works for me because I actually don't own a car at all at the moment. These tax benefits are going to really work for me. I'm going to get this novated lease. I'm going to, you know, pay it off for three years. In three years, they're going to offer me the opportunity to pay the residual value on the car. It's like, oh, can we renegotiate that? Just stretch it out a bit further. I'll pay more off, but I want the tax benefits. So you stretch it out for another three years. You've had the

car for six years. Car's basically completely paid off. Now you decide to put that in your personal name and go, you know what? We had a really good run. I was paying for fuel and stuff out of my pre-tax income. Now it's out of my post-tax income, but I don't have a car repayment anymore. So I actually have a lot more money to play with. Gotcha. Okay. But what happens if you want to cancel in the middle of a lease? All right. So if you want to cancel in the middle of the lease, you essentially have to pay out your lease early. Just like in any lease contract, you'll have like a get out of jail early clause. Right. So when you take on an ovated lease, you agree to lease the vehicle for a set period of time. And then if you break the lease early,

you're going to have to pay the remainder left on the lease along with the residual value of the vehicle, including GST. Okay. So if you want to get out of it early, it might not be the best financial decision because it might actually cost you a bit more. Sure. But you've just got to be careful, read all your terms and conditions and make sure that you understand all the T's and C's and fees involved. I'm just really good at reading ads. You've done that. I've tried. I've tried my best. So is there anything else I should consider? Look, there's a whole heap. I'm just going to list off a few. Obviously, understand your income. You need to make sure that the income tax savings

will actually be enough to offset the cost of the lease. So for example, it might not actually make sense for people on lower incomes to do this because it's like, well, the benefits are negligible. What kind of vehicle are you actually going to lease? So as we said before, novated leases are particularly attractive for people who want to buy like electric vehicles or hybrids because you get out of the FBT, which is kind of attractive because they now have that exemption as long as the value of the car is below what's called the luxury car tax threshold for fuel efficient vehicles, which this year in the 2023-2024 tax year is $89,332, which is so much money for a car, Bec. Yeah. And obviously this considerably boosts novated lease tax savings.

Yeah. Okay. Okay. I got you. When it comes to how many kilometers you're going to be driving on this. So generally people who use their car a lot are going to get a whole heap more benefits through saving on fuel and other running costs, including part of the lease. So I've worked with clients where it actually genuinely makes financial sense for them to consistently have a novated lease. Good example, they're a BDM for financial advisors. Their job is to drive around all the financial advisors in the state that they manage. So they go from their house every single day. They might come into the city and go to the office. They might then go out to, you know, Nuna Wadding and then they might be in Dandenong and then they might be over in Elstonwick and

like they drive around the city a lot. In these circumstances, a novated lease might make sense because you're putting your car through a lot. There's obviously a lot of wear and tear happening on their car. There's obviously a lot of fuel costs in that circumstance. And that could actually make sense as a part of that salary conversation when you go, hold on, like this is actually more of a work vehicle than it is actually just like a, I really wanted to drive a Tesla kind of situation, you know? Gotcha. So the purchase price of the vehicle, we also want to look at. So like too low, the GST savings might not be enough to offset the lease costs, but then too high and the savings as a percentage of the vehicle's value will become very low. And a common mistake to

avoid there is buying a more expensive vehicle than you need in an attempt to maximize tax savings. Gotcha. Cut that out. Don't do. Don't do that. Don't do that. We need to understand lease costs so an ovated lease will work best if you can get a deal with a competitive interest rate and low lease fees. So as I said before, we need to understand our T's and C's and fees. Don't agree to anything without that. And obviously, we need to understand things like administration fees that are going to be charged by the lease company, not just your competitive interest rate. Understand what the lease term is. So similar to other kinds of finance, you could reduce your interest or other costs by choosing a shorter term.

So you might be offered a seven-year lease. What would it look like over three? What would it look like over five? Can you afford that? Does that make sense for you? And a smart approach I've seen for some people is to choose the shortest term possible while maximizing the percentage of the vehicle you pay off by the end of the term, and then do it across as many financial years as possible so you're maximizing tax savings. That is so clever. I've talked about novated leasing a million times before with friends and family and trying to understand it, and I think the one thing that I really want you to understand is that novated leasing makes sense. yeah like i've just explained it all there are obvious pros and obvious cons sure but the thing

i don't want you to get stuck on is justifying a more expensive purchase because it's better for tax right so we're not going to do that are we back no we're not going to do that this is definitely a lot of information if i were a listener i would listen twice in a row just you would not you dirty dirty liar i am not you are little fibber just in case you need to we are here for you this is a lot of information to take in go absorb it and have the best week we'll see you on friday bye guys the advice shared on she's on the money is general in nature and does not consider your individual circumstances she's on the money exists purely for educational purposes and

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