Novated leases can be a big help to some doctors, but not a great idea for others. How about you? Medical accountant Kym Nitschke explains what you need to know.
In Australia, a novated lease is a salary package where you forfeit a portion of your income in exchange for your employer’s help in leasing a vehicle. The big advantages here are that you get access to a new car right away and can rely on your employer to cover most of the running costs.
A novated lease is the alternative to leasing a car on your own which can take a while to qualify for. You’ll have to have a large sum saved up to pay upfront. It’s easy to qualify for a novated lease when your employer is the one who’s primarily responsible for it.
Here’s how a novated lease works.
How Can a Novated Lease Help You?
A novated lease is a vehicle lease between three parties: your employer, a financier and you, the employee. On termination of employment, the responsibility of the lease transfers to you. But as long as you’re working for your employer, he or she assumes responsibility for fulfilling the lease requirements.
What are the benefits of this arrangement? A lot depends on the terms of your lease. But some of the main perks include:
– Employer takes care of lease payments.
– Employer provides fuel, maintenance and insurance for your vehicle.
– Tax savings for you since the lease is taken out of your pre-tax income.
– No worries about budgeting for your car lease out of each pay packet since it’s automatically taken out of your salary.
– Choose the car you love. When you lease a vehicle through your employer, you’ll have few limitations on choice.
– Save time. Novated leases generally mean fast approval and no hassle from car shopping and haggling as the financier takes care of it all.
– Are you a doctor who’s always on the road? If so, leasing a vehicle through your employer could be a huge advantage. The system is convenient and provides tax benefits.
Event so, there are some reasons to approach the idea of novated leasing with caution.
Pitfalls of a Novated Lease
Novated leasing to get a new car sounds like some kind of a business perk. In reality, however, it isn’t exactly a gift from your boss.
You’re still the one who ends up paying for the car! You’ll likely end up paying more for the vehicle through novated leasing than if you were to pay for it yourself due to all the fees attached to the financing arrangement.
Novated leasing means that you forfeit some of your monthly income to afford the vehicle. Don’t rush out to apply for a lease if you aren’t sure your current lifestyle and budget can afford the monthly loss!
Be aware, too, that a novated lease is debt. If you are in a bad situation financially, then this isn’t the chance to get a free ride from your boss. A novated lease should only be taken on when you’re financially ready for the responsibility.
Another downside is that you cannot make alterations to a car you’re leasing through your employer because you don’t yet own it outright. The same is true when it comes to listing your assets for borrowing purposes. The vehicle isn’t an asset of yours until you own it.
Questions to Ask Yourself About Novated Leasing
Has your boss told you that you have the chance to lease a car through the company? Before jumping onto that prospect, ask yourself a few questions:
– What are your current assets? Can you trade-in or sell your current vehicle for an upgraded one that will give you more stability and control over your life than leasing?
– How is your credit? There are financing options out there specifically for people with bad credit. But novated leasing isn’t one of them.
– Do you need the vehicle for business purposes? You can use a novated lease to drive a car for personal use, but if you don’t absolutely need it for work purposes, then you may be inclined to take on the financial burden for unnecessary reasons (like showing it off to your mates).
– How much will you use it? Some leases require you to drive the car a minimum number of kilometres each year.
Don’t lock in a novated lease before getting quality advice.
Nitschke Nancarrow are experts in the business of medical professionals – whether it is running a medical practice, or a personal tax or investment matter, or getting finance – contact us to get the right advice.
– Kym Nitschke
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
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