Can I salary package a car in Australia?
Yes, you can salary package a car in Australia, typically through a novated lease. This allows you to pay for your car and its running costs from your pre-tax salary, potentially reducing your taxable income and offering GST savings.
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How it works in practice
What is Salary Packaging a Car?
Salary packaging a car, most commonly achieved through a novated lease, allows employees to pay for their car and associated running costs directly from their pre-tax salary. This arrangement involves three parties: you (the employee), your employer, and a finance company. Your employer makes car payments and running cost deductions from your gross salary before tax is calculated.
How it Works
Under a novated lease, the responsibility for your car repayments, fuel, insurance, and maintenance transfers to your employer. These costs are deducted from your pre-tax income, reducing your taxable income. You also benefit from GST savings on the purchase price of the vehicle and its running costs. While this reduces your income tax, the arrangement typically attracts Fringe Benefits Tax (FBT), which your employer is liable for, though this is often passed on to the employee as part of the salary package.
Important exceptions
Not all employers offer salary packaging as it is a voluntary benefit. Employers must be willing to set up and administer novated lease agreements. Fringe Benefits Tax (FBT) applies, and the tax benefits can be reduced if the car has significant private use. Individuals must consider the total cost, including FBT, administration fees, and any potential impact on other income-tested government benefits or loan applications, as your taxable income will be lower.
What you should do now
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Research novated lease providers and understand the costs and benefits of salary packaging a car.
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Discuss with your employer whether they offer salary packaging arrangements and what their policy is.
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Obtain quotes for a novated lease on your desired vehicle, including all associated running costs and FBT estimates.
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Review the terms and conditions carefully, paying attention to fees, insurance, and end-of-lease options.
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Sign the novated lease agreement with your employer and the finance company once all parties agree to the terms.
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