Novated Lease Case Study - Benefits for those on lower incomes

This case study explores the scenario of an employee operating a Toyota Corolla under a novated lease arrangement. Our employee earns a salary of $50,000 per year. This example shows that a Novated Lease can provide real benefits to people on a wide range of salaries, not just executives.

In this example, our employee saves over $10,000 over the 48 month lease term. That's a saving of $53 per week or $2,743 per year.

Vehicle: Toyota Corolla sedan
Estimated Annual Kilometres: 20,000
Lease Term: 48 months
Gross Salary: $50,000 p.a.

Summary of Estimated Savings

Savings on purchase and finance: $5,561 over the lease term of 48 months.
Savings on running costs: $1,353 over the lease term of 48 months.
Net annual saving: $2,743
Net weekly saving: $53

 

Novated Lease Calculations

The following section details the working behind the above results.
Novated leases do not break any Australian Tax Office (ATO) rules, in fact, the ATO explanation of the formula used to calculate these results can be found here.

1. Vehicle Details

Without Packaging With Packaging
Amount Financed: $22,239.70 $18,642.91
Residual Value: $7,783.90 $7,177.52
Monthly Finance Payment: $411.61 $368.04
Annual Finance Payments: $4,939.32 $4,416.48

  • Amount financed when packaged is less by fleet discount ($2,750) and GST ($2,022).
  • Residual value is 35% of amount financed in both cases based on ATO guidelines.
  • Non-packaged example uses a consumer lease arrangement.
  • Finance payment includes stamp duty.

2. Vehicle Running Costs

Without Packaging With Packaging
Registration: $596.00 $596.00
Insurance: $825.00 $750.00
Fuel: $3,267.00 $2,970.00
Maintenance: $880.00 $600.00
Tyres: $440.00 $300.00
Administration Costs: $0.00 $228.00
GST on Employee Contribution: $0.00 $349.30
Total Annual Running Costs: $6,008.00 $5,793.30

  • Packaged running costs include volume discounts on maintenance and tyres of approximately 25%.
  • When packaged, GST is not payable on insurance, fuel, maintenance and tyres.
  • When packaged, GST is payable on the employee contribution

3. Salary Breakdown

Without Packaging With Packaging
Gross salary: $50,000 $50,000
Salary sacrifice: $0 ($6,367)
Revised gross salary: $50,000 $43,633
Tax on revised gross salary: ($11,100) ($9,094)
Employee Contribution: ($10,947.32) ($3,843)
Annual Net Salary: $27,952.68 $30,696
  • An employee contribution equivalent to the taxable value (caclulated using the Statutory Formula Method) is made to offset fringe benefits tax liabilities.

4. Equivalent After Tax Cost Summary

This section shows how much the car actually costs in 'take home pay' terms.

Without Packaging With Packaging
Equivalent after tax vehicle cost: $4,939.32 $3,549.00
Equivalent after tax running costs: $6,008.00 $4,655.00
Total annual after tax cost: $10,947.32 $8,204.00
  • After tax costs include the effect of the income tax savings and depend on the gross (before tax) salary.