A government designed way to assist you pay for your personal car when you pay for your car costs in a particular way. That way is called a novated lease.
Depending upon your employer type, you can pay for a large portion (if not all) of your vehicle expenses from pre-tax salary.
Tax is then calculated on the remaining (lower) salary amount, resulting in less tax being deducted.
So, by paying less tax, you have more cash in your hand.
Why Does Novated Leasing Exist?
The government designed a way increase salaries at no cost to the employer whilst also reducing the pressure on inflation and reducing government costs.
In the 1980’s when inflation was nudging 12% (the average increase in everyday costs each year), interest rates were at 17% and employers couldn’t afford pay rises, the government had to do something. Paul Keating as Federal Treasurer introduced several initiatives to assist in stimulating the economy.
As up-front pay rises add to the inflation rate, Keating devised a way to simultaneously provide a pay rise at no cost to the employer whilst reducing the pressure on inflation.
So, instead of a direct pay rise (which adds to inflation), an indirect pay rise is given (by paying less tax) by allowing a personal vehicle to be paid for from salary before tax was calculated.
An additional benefit is employees are more equally treated as novated leasing benefits are shared between all employees, whatever their role.
Further, the benefit is proportional your vehicle use, so whether you travel a little or a lot, you and everyone else are all benefitted equally as the savings are a proportion of the total costs.
Novated leasing is designed to benefit everyone, including you.