Novated Lease Case Study - A popular example.

This case study explores a popular scenario of an employee operating a popular sedan under a novated lease arrangement. Our employee earns a salary of $80,000 per year.

In this example, our employee saves over $12,000 over the 48 month lease term. That's a saving of $85/week or $4,400 per year.

Vehicle: Popular sedan
Estimated Annual Kilometres: 25,000
Lease Term: 48 months
Gross Salary: $80,000 p.a.

Summary of Estimated Savings

Savings on purchase and finance: $12,380 over the lease term of 48 months.
Savings on running costs: $5,244 over the lease term of 48 months.
Net annual saving: $4,407
Net weekly saving: $84.75

 

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: $38,466.00 $30,353.10
Residual Value: $13,463.10 $10,623.55
Monthly Finance Payment: $699.61 $552.05
Annual Finance Payments: $8395.32 $6624.60

  • Amount financed when packaged is less by fleet discount ($5,245) and GST ($2, 868.10).
  • 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: $724.00 $724.00
Insurance: $919.60 $836.00
Fuel: $3,368.20 $3,062.00
Maintenance: $872.45 $595.00
Tyres: $481.14 $328.13
Administration Costs: $0.00 $200.00
GST on Employee Contribution: $0.00 $573.62
Total Annual Running Costs: $6,365.39 $6,318.75

  • 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: $80,000 $80,000
Salary sacrifice: $0 ($6,634)
Revised gross salary: $80,000 $73,366
Tax on revised gross salary: ($21,050) ($18,460)
Employee Contribution: ($14,761) ($6,310)
Annual Net Salary: $44,189 $48,596
  • 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: $8,395 $5,300
Equivalent after tax running costs: $6,365 $5,054
Total annual after tax cost: $14,761 $10,354
  • After tax costs include the effect of the income tax savings and depend on the gross (before tax) salary.