Novated leasing vs buying outright: which is better for you?

Deciding whether to buy or lease a car? It’s a big call and so you’re smart to get clued up. Lots of people aren’t in a position to buy a car outright, so Oly is here to demystify novated leasing and make your decision easier.

3 minute read

Published on September 3, 2024

The benefits of a novated lease for small to medium business

Key takeaways

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Novated leasing lets you pay for your eligible EV and running costs entirely with before-tax salary, thanks to the EV Discount FBT exemption.

A novated lease rolls all your car expenses (fuel, rego, servicing, insurance) into one cruisy, regular payment straight from your pay.

If you earn $90k a year, lease a $34k car, and clock 15k kms/year, you could save $2,572^ in tax each year with a novated lease.

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Is novated leasing better than buying?

Choosing between financing a car with a novated lease and buying one outright boils down to your finances.
For instance:

Have you the cash to buy outright, or will you need to finance?
If you plan to finance a car, do you get the difference between a novated lease and a car loan?

If you’re tired of juggling bills, a novated lease rolls all your driving expenses ― car payments, fuel, rego, insurance, servicing, tyres and more ― into one super-convenient, regular payment direct from your pay, ditching the financial circus for a simpler life!
You also get to funnel part of the lease payment (or the whole enchilada for an eligible electric car) straight from your before-tax salary — meaning you could pay less tax.

Plus, you have flexible options at the end of your novated lease, choosing between:
Flipping your old car for a shiny new one. Take out a fresh lease and upgrade to the latest hot ride and hit the road smiling.
Extend your current lease and keep your familiar wheels. Just refinance the residual amount (the balloon payment you owe at the end of your lease) and keep up your regular payments*.
Paying off the residual to own your car outright (conditions may apply).

Is it better to salary sacrifice or buy a car outright?

When choosing between salary sacrificing a car or buying one outright, it pays to weigh your options carefully. For instance, if you buy outright, you don’t need your employer's approval, but it could suck your savings dry.

When you salary sacrifice your car through a novated lease, the finance company owns your car, but there’s no upfront deposit, and you could save on GST in more than one way:

No upfront GST on the price of the car
No GST on the running costs

This could save you up to $6,334 for FY24/25. You can skip GST on cars up to $69,674. For cars with a driveaway price over $69,674, GST applies only to the portion above that amount.

Do you really save money with a novated lease?

You don’t need to be a fat cat to save money with a novated lease. Because some of your payments are made from your before-tax salary, you could slash your taxable income and save thousands each year.

Say you pull in $90k a year, lease a $34k car, and clock 15,000 kms a year, you could pocket $2,572^ in tax savings each year with a novated lease.

Novated leasing an EV vs buying outright

Thinking about making the switch to an electric car? Here’s the scoop.

Novated leasing is the only way to tap into the government’s EV Discount. This EV-peasy fringe benefits tax (FBT) exemption on eligible electric cars means you can pay for the whole shebang ― car and running costs ― from 100% before-tax salary, which could save you thousands each year.

Oly LOVES sourcing cars and helping you save stacks

Oly brings the nifty tax perks of novated leasing to small and medium sized businesses, so it’s no longer a perk reserved for the corporate world. Oly helps you find your car, nail down insurance, and sync up direct payments from your salary with your boss.

And thanks to Oly’s mammoth network of car dealers, you could get a great deal on your new ride.

Get your quote with Oly now

^ & * Disclaimer

^ The estimated potential tax benefit is exclusive of GST and is based on the assumption that you would have paid for the lease from your post-tax salary (as opposed to salary sacrificing those payments from your pre-tax salary or a combination of your pre and post-tax salary). Payment includes: your car payments, registration, tyres, insurance and scheduled servicing. The estimated annual benefit will vary depending upon salary, employment circumstances, selected benefits and applicable tax treatment. The example assumes that the lease is an Oly fully maintained lease, you live in NSW, you earn $90,000 a year, a 5 year lease term, an annual distance travelled of 15,000 kms, a vehicle valued at $34,000, a 28.13% residual value payable at the end of the lease term and that Employee Contribution Method (ECM) is used. The estimated annual operating costs includes estimates of fuel/charging costs, maintenance, tyres, registration, comprehensive insurance and fees have been calculated on a GST exclusive basis on the assumption that your employer will be entitled to GST input tax credits and will pass on the benefit to you, reducing the impact of the GST. GST is payable on your ECM contributions. State Stamp Duty rates apply. PAYG tax rates effective 1 July 2024 have been used. Individual circumstances may vary. Contact Oly to discuss what you can package given your individual circumstances.

* Conditions may apply if your car is more than 7 years old or worth less than $5k at the end of your lease.

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