At WhipSmart, we’ll be the first to admit it: we love a good novated lease. But we also believe in total transparency. While we’d love to see you behind the wheel of a shiny new car, we want you to make that choice with your eyes wide open.
Deciding how to finance your next vehicle is a big move. To help you navigate the road ahead, we’ve broken down exactly how these leases work and—more importantly—where the potholes might be.
First Things First: What is a Novated Lease?
Forget everything you know about traditional car loans. If a standard loan is a straight line from A to B, a novated lease is a clever shortcut through your payroll.
In simple terms, a novated lease is a three-way agreement between you, your employer, and WhipSmart. Instead of paying for your car with the money left over in your bank account after the taxman takes his share, your employer deducts the costs directly from your pre-tax salary.
It’s an all-in-one package. You can bundle your lease payments with running costs like:
Fuel or Charging
Registration and Insurance
Servicing and Tyres
Roadside Assistance
The kicker? Because these are business expenses for the provider, you don’t pay GST on the purchase price of the car or the running costs. That’s an immediate 10% saving right out of the gate.
The Pros: Why People Love It
1. The Tax Advantage
By paying with pre-tax dollars, you reduce your taxable income. This means you’re essentially paying less income tax while simultaneously paying off your car. It’s one of the few ways everyday Australians can legally “salary package” a major lifestyle asset.
2. Ultimate Convenience
Think of it as “Life on Autopilot.” You never have to worry about a surprise $1,200 bill for new tyres or an annual registration hike. It’s all smoothed out into one consistent, manageable deduction from your pay.
3. The EV Revolution
If you’re looking at an Electric Vehicle (EV) or a Plug-in Hybrid (PHEV), the benefits are currently massive. Thanks to the Electric Car Discount, many EVs are exempt from Fringe Benefits Tax (FBT), which can save you thousands of dollars more per year compared to a petrol car.
The Cons: What to Watch Out For
1. Vehicle Restrictions
We’ve included this on the “cons” list to be technical, but in reality, we’re not so sure it belongs here. While it’s true you can’t lease a “project car” from the 80s, the only real rule is that the car can’t be more than twelve years old. Our catalogue is expansive; from the latest hybrids to reliable family SUVs, so unless you’re looking for a vintage relic, we’ve probably got you covered.
2. Impact on Government Benefits
This is a crucial one. A novated lease appears on your tax statement as a Reportable Fringe Benefits Amount (RFBA). While you don’t pay income tax on this amount, the government “grosses it up” to calculate your income for certain tests. This could affect:
HECS-HELP repayments (they might increase).
Child Support payments.
Medicare Levy Surcharge.
WhipSmart Tip: We always recommend chatting with an independent financial advisor to see how an RFBA might change your specific tax position.
3. The “Early Exit” Hurdle
Novated leases are designed for the long haul (usually 1 to 5 years). They aren’t built to be broken early. If you leave your job or want to end the lease prematurely, you may be required to pay out the remaining balance and the residual value (the final “balloon” payment) all at once.
The Verdict
A novated lease can be a powerful financial tool that puts a better car in your driveway for less money. However, it’s not a “one size fits all” solution. It works best for those who want to simplify their budgeting and maximize their take-home pay through clever tax positioning.
Are you ready to see the numbers for yourself?
