Novated Lease – Pros and Cons

We are often asked “Is a novated lease good for me?”

So, we thought we’d put together some of the Pros and Cons of a Novated Lease.

Novated leases in Australia offer several benefits for employees who have no other way of gaining a tax benefit from vehicle ownership.

Pros:

Tax Savings
One of the primary benefits of a novated lease is the potential for tax savings. Lease payments, as well as other vehicle-related expenses such as fuel, maintenance, and insurance, are deducted from your pre-tax income, reducing your taxable income and overall tax liability. The Australian Government has also recently introduced FBT saving on EV’s financed under salary sacrifice which is not available on non-EV’s under the same salary sacrifice arrangements.

Flexible Vehicle Choice
Novated leases offer flexibility in choosing the vehicle that best suits your needs. You can select from a wide range of new and used vehicles, including cars, SUVs, and commercial vehicles.

Fixed Monthly Payments
Novated leases typically involve fixed monthly payments, making budgeting easier and providing certainty about your vehicle-related expenses.

Employer Support
Many employers offer novated leasing as part of their employee benefits program, providing additional support and incentives for employees who choose this option.

Ownership Options
At the end of the lease term, you have the option to purchase the vehicle outright (payout the residual in full), Trade the vehicle in for another vehicle, refinance the residual value.

Convenience
Novated leases can be convenient, as the lease payments and other expenses can be included in the monthly payment and are automatically deducted from your salary, eliminating the need to manage these payments separately.

Cons:

While novated leases can offer several benefits, there are also some potential drawbacks to consider:

Commitment
Novated leases are usually long-term commitments, often spanning several years, you cannot contribute a deposit to the purchase and having a residual is a requirement of a lease. If your employment situation changes or you no longer require the vehicle, terminating the lease early can be costly.

Financial Responsibility
With a novated lease, you are still responsible for all ongoing costs associated with the vehicle, including fuel, maintenance, registration, and insurance. If you underestimate these costs, it could lead to changes to your budget.

Depreciation Risk
Like any vehicle ownership arrangement, novated leases are subject to the risk of depreciation. If the value of the vehicle depreciates faster than expected, you may end up owing more than the vehicle is worth at the end of the lease term, any payments outside of the lease agreement will be made from your post tax income and not form part of your salary sacrifice agreement.

Complexity
Novated leases involve several parties, including you, your employer, and the leasing company. Managing the lease and ensuring compliance with all requirements can be complex and time-consuming.

Impact on Salary Packaging
Salary packaging through a novated lease can affect your take-home pay and other employee benefits. It’s important to understand how the lease will impact your overall financial situation.

Fringe Benefits Tax (FBT)
Depending on your circumstances, you may be liable for FBT on the novated lease. This can reduce the tax benefits of the lease and increase your overall tax liability.

Unnecessary Addons Products
Be aware of unnecessary “Junk” insurances that can be added to your novated lease agreement, adding to the overall cost of the lease.

Additional costs to consider
Should you decide to leave your current employer (and your new employer doesn’t offer salary sacrifice arrangements) all payments, including the GST on the lease payment, are your responsibility and will need to be paid from post-tax income.
This can also include additional costs such as GST and lender break fees should you pay out the lease early. Which can reduce the tax savings originally gained from pre-tax payments.

Overall, novated leases can be a cost-effective and flexible way to acquire and manage a vehicle, offering tax benefits and other advantages for eligible employees in Australia. However, it’s essential to carefully consider your individual circumstances and seek advice from a financial advisor, tax professional and your finance broker before entering into a novated lease agreement.

RBA holds rates for March 2024

The recent decision by the Reserve Bank of Australia (RBA) to keep the official cash rate unchanged at 4.35% can have several implications for Australian households:

Mortgages and Loans: For households with variable-rate mortgages or loans, the decision means that their interest rates will remain stable for now. This can provide some certainty in terms of monthly repayments.

Savings: On the flip side, Australians with savings in bank accounts or term deposits may see little change in their interest earnings, as banks are less likely to increase interest rates on savings accounts when the cash rate is stable.

Consumer Spending: The decision could potentially stimulate consumer spending, as households may feel more confident about their financial situation when interest rates are steady. This could benefit businesses, particularly in sectors like retail and hospitality.

Property Market: The stability in interest rates could influence the property market. While it may not directly impact house prices, it could affect the demand for housing loans and, consequently, the pace of property transactions.

Overall Economy: The RBA’s decision reflects its outlook on the economy. A decision to hold rates could suggest that the RBA is comfortable with the current economic conditions and does not see an immediate need for further stimulus or tightening.

The positive message from today’s RBA Press conference, Michelle Bullock, RBA Governor says “We are on the right track….”

As the holiday season moves into full swing, we’re gearing up for some unforgettable road trips across the beautiful landscapes of Australia. But before we rev our engines, let’s talk about the importance of safe road travels to make this holiday season truly joyful for everyone!

Stay Alert, Stay Alive!

The road is our canvas, and safety is our priority. Before embarking on your journey, ensure you’re well-rested and alert. Fatigue can impact your focus and reaction time, so make pit stops when needed and share the driving responsibilities.

Vehicle Check-Up Time!

Give your vehicle some TLC before hitting the road. Check those tires, brakes, lights, and fluids. A well-maintained vehicle is a reliable companion on your road adventure!

Pack Smart, Pack Safe!

Packing for your trip? Ensure all luggage is securely stowed, so nothing becomes a projectile in the event of a sudden stop. Plus, it helps to have essentials like a first aid kit, spare tire, and emergency tools on hand.

Follow the Rules of the Road

Let’s keep the holiday cheer alive by obeying traffic rules. Stick to speed limits, wear your seatbelt, and avoid distractions like mobile phones. Your safety and the safety of others depend on it!

Plan Your Route

Failing to plan is planning to fail, they say. Plot your route, be aware of road conditions, and have a backup plan in case of unexpected delays. It’s the key to a stress-free journey.

Be Mindful of Pedestrians

In the holiday hustle and bustle, let’s not forget our friends on foot. Be extra cautious in pedestrian zones, and watch out for little ones who might be more excited about the festive season than looking both ways.

Designate a Sober Driver

If your holiday celebrations involve a few drinks, plan ahead and designate a sober driver or use alternative transportation options. Let’s ensure everyone gets home safely.

And enjoy your trip!

EV owners, did you even know this was a thing?

Article by Jennifer Dudley-Nicholson and Paul Osborne.

The High Court on Wednesday ruled on a case involving Victoria’s road user tax on low-emission vehicles, launched by two electric vehicle drivers in 2021.

The court found the Victorian government could not charge electric, hydrogen and plug-in hybrid vehicle owners a fee for each kilometre they travel, or whether the road user charge is a tax that can only be imposed by the federal government.

The outcome is expected to affect more than just Victorian drivers as attorneys-general for all states and territories intervened to argue for the right to tax road users and two states have announced plans to do so in 2027.
Victorian drivers Chris Vanderstock and Kath Davies launched the lawsuit shortly after the state government introduced its Zero and Low-Emission Vehicle road user charge.

The law charges electric and hydrogen vehicle owners 2.8 cents for each kilometre they travel during the year and plug-in hybrid vehicle owners 2.3 cents.
Hybrid vehicles are exempt.

Motorists are required to submit photographs of their vehicle odometer to the state government each year and, if they fail to, can be charged for driving 13,500km or have their registration suspended or cancelled.

But lawyers for Mr Vanderstock and Ms Davies argued the road user charge was a consumption tax that replaced the federal fuel excise tax and, according to the Constitution, could not be collected by state governments.

Equity Generation Lawyers senior associate David Hertzberg said the plaintiffs hoped the lawsuit would prompt a new approach to road user charges.
“One of the implications of this case, if we are successful, is that it might pave the way for coherent, consistent and fair national policy to encourage the (transport) transition,” he said.

While Victoria is the only state to charge low-emission vehicle owners so far, NSW and Western Australia have announced plans to introduce similar schemes in July 2027.

The High Court decision also comes weeks after Victorian Ombudsman Deborah Glass released a report into the state’s ZLEV scheme, saying those administering it were inflexible in dealing with complaints and driver penalties were not outlined in legislation.

Are you feeling overwhelmed by a pile of debts with varying interest rates, due dates, and payment amounts? Debt consolidation in Australia could be your ticket to simplifying your financial life and regaining control of your money. In this short blog post, we’ll dive into the basics of debt consolidation and why it might be a smart move for Australians struggling with multiple debts.

What is Debt Consolidation?

Debt consolidation is a financial strategy that involves combining multiple debts, such as credit card balances, personal loans, and other unsecured debts, into a single, manageable loan. The primary aim is to streamline your finances by simplifying your debt obligations and potentially reducing the overall cost of borrowing.

Advantages of Debt Consolidation in Australia

1. Simplified Payments: Instead of juggling numerous creditors, you’ll make a single monthly payment, making it easier to keep track of your finances.
2. Potentially Lower Interest Rates: Debt consolidation loans in Australia often come with competitive interest rates, especially if you have a good credit score. This can lead to significant savings over time.
3. Fixed Repayment Terms: With a debt consolidation loan, you’ll have a clear repayment plan with fixed monthly instalments, helping you budget more effectively.
4. Improved Credit Score: As you make regular payments on your consolidation loan, your credit score may improve, opening doors to better financial opportunities.
5. Reduced Stress: Say goodbye to the constant stress of multiple due dates and high-interest rates. Debt consolidation can bring peace of mind and financial stability.

How to Get Started

1. Assess Your Debt: Begin by listing all your outstanding debts, including the amounts owed, interest rates, and minimum monthly payments.
2. Talk to your finance broker: Your finance broker will have access to multiple reputable lenders that offer debt consolidation loans. Your Finance broker can quickly compare their terms, interest rates, fees and payments.
3. Your Finance broker will check your credit: A good credit score can help you secure a more favourable loan offer. Review your credit report with your finance broker so that they can guide you to address any errors or issues if necessary.
4. Apply Wisely: Don’t apply to multiple lenders at once. Your finance broker, after carefully reviewing your credit score and lenders offers and discussing those options with you will submit your application to your chosen lender. Don’t only pay attention to the interest rates alone. It’s important to be aware of repayment terms, and any associated fee, either up front or ongoing. Some fees aren’t typically factored into the interest rate, so a low rate may not mean best payment.
5. Create a Budget: Develop a budget to ensure you can comfortably meet your new monthly payment while avoiding further debt accumulation.

Conclusion

Debt consolidation is a practical solution for Australians seeking to simplify their financial lives and reduce the burden of multiple debts. By consolidating your debts into one manageable loan, you can potentially lower interest costs, lower your overall monthly outgoings, improve your credit score, and work towards a debt-free future. However, it’s essential to choose a lender and loan terms that align with your financial goals and budget. If you’re ready to take control of your finances, debt consolidation might be the right path for you.

Talk to your National Direct Finance broker to discuss if debt consolidation could be an option for you.