13 Sep 2024
Your guide to Novated Leases for used cars
Did you know Novated Leases aren't just for brand-new vehicles? You can also get tax benefits of a Novated Lease with a used car.
Whether you're eyeing off a used car or want to keep using your current car, a Novated Lease might be a smarter choice than buying it outright.
This guide breaks down some key things you need to know about Novated Leases for used cars, from how they work to the key benefits of choosing a Novated Lease over buying outright.
How a used car Novated Lease works
Let’s take a look at what Novated Leases are, how they work, and what happens when you lease a used car or your current car. Firstly, let’s start by summarising a Novated Lease.
What is a Novated Lease?
Novated Leasing is a way to get into and run a car while reducing the income tax and GST you pay. A Novated Lease is an agreement between you, your employer and your leasing company. You can choose a new car, a used car or even your current car through a ‘Sale and Leaseback’. For the purposes of a Novated Lease, a ‘car’ can be a:
- passenger car (e.g. sedan; SUV)
or - goods vehicle (e.g. ute) which is less than 1 tonne, including accessories (e.g. tow bar; bull-bar).
- The car must carry fewer than nine passengers and must have a carrying capacity of less than 1 tonne.
When you lease rather than buy a car outright – whether it’s new or used – your lease payments and budgeted running costs are bundled together into one regular payment (aligned with your payday), paid directly from your salary by your employer for the term of the lease – typically 2 – 5 years. You don’t have to pay an initial deposit, either.
One of the main reasons people choose Novated Leases is that most of your regular payment is deducted from your pre-tax salary, reducing the amount of income tax you pay. If you lease an eligible electric vehicle (EV) or eligible plug-in hybrid vehicle (PHEV) after 1 July 2022, the entire regular payment can be deducted from your pre-tax salary, due to the Electric Vehicle Discount Act introduced by the Australian Government.
How does a used car Novated Lease work?
A Novated Lease on a used car works in a similar way to a Novated Lease on a new car. Once you’ve found the used car you’d like to lease, you’ll provide your leasing company with the details of the seller and the car, and the leasing company will then develop a Novated Lease quote.
It's important to note that to lease a used car (with FleetPartners), the car needs to be less than 12 years old at the end of the lease term and have less than 150,000km on the odometer at the start of your lease.
How does a Novated Lease work for my current car?
Many people aren’t aware they can get a Novated Lease for their current car. The primary reason people consider this option is because they are looking for the tax savings and convenience a Novated Lease offers, but they love the car they drive now and are not yet ready to replace it.
Your vehicle must have less than 150,000km on the odometer, be in good working order and be less than 12 years old on the proposed end date of the lease.
In the case of an existing vehicle, the first step is what’s referred to as a ‘Sale and Leaseback’. This is where the leasing company agrees to buy your vehicle from you at an agreed price and then sets up a Novated Lease, leasing it back to you for an agreed lease term.
3 reasons to lease a used car rather than buying one outright
There are many reasons to lease a car rather than buy one outright. Here are the three most common reasons people choose novated leases rather than buying their car outright.
1. Novated Leases can be more cost effective
Sometimes, Novated Leasing can be even more cost-effective than buying a car outright. There are a few reasons for this. Firstly, your taxable salary is reduced because most of your Novated Lease repayments come from your pre-tax salary (before income tax is calculated and applied to your salary).
And, leasing companies often partner with dealerships as well as servicing and maintenance providers. This means they can often negotiate lower prices on cars and servicing.
2. Novated Leases can make it easier to budget
Regular payments can make it easier to manage your budget. Both the finance payment and budgeted running costs are combined into one regular payment which is deducted from your salary. This includes a budget for running costs such as fuel (or electricity charging), servicing and maintenance, registration and CTP. Your running cost budgets accumulate in your Novated Lease account and so when it’s time to service your vehicle, replace the tyres or re-register it, FleetPartners will pay these costs directly from your account. This way, you won’t incur out of pocket expenses, and you won’t need to ‘find’ a lump sum amount to pay for bills relating to your car.
Your running costs are budgeted upfront, factoring in things like your average driving distance. So, if you find that you’ve under or overestimated your driving patterns, you can adjust the running cost budgets in your lease.
3. Novated Leases for EVs can take advantage of tax exemptions
When you lease an eligible EV or PHEV, you could save even more. That’s because the federal government offers a full fringe benefits tax (FBT) exemption for vehicles that fall below the luxury car tax threshold of $91,387 and meet the other applicable vehicle criteria.
Used EV and PHEV may also be FBT exemption, as long as the vehicle meets the following criteria:
- The previous owner/s have not paid luxury car tax
- The vehicle is considered a ‘car’ according to the ATO definition (see above for more details)
- The used vehicle is a:
a. battery electric
b. hydrogen fuel cell electric
c. or a plug-in hybrid (note that these vehicles are only exempt until 1 April 2025).
Novated Leases on second-hand cars
What is the oldest used car you can lease?
You can lease a used vehicle that’s up to 12 years old at the end of the lease term and has driven less than 150,000km. If you want to lease your current car through a sales and leaseback scheme, the same criteria applies.
What is the difference between a Novated Lease on a new car versus a used car?
The main difference between a Novated Lease on a new versus a used car is the upfront GST savings on the purchase price of a new car. When you Novate a new car, you can save up to $6,334 (as at 01/07/24) on the GST on the car purchase price – a saving that’s not applicable on used cars.
The FBT exemption available on eligible EV and PHEV vehicles may also be available on used cars, but only if the previous owner/s haven’t paid luxury car tax.
How does a Novated Lease affect my tax situation?
Most Australians who get paid a regular salary and whose employer offers Novated Leasing (as an employee benefit) are eligible. Your leasing company works with your employer to set up your lease. A portion of your lease payments are then deducted from your pre-tax salary (the rest from post-tax salary) – which reduces your pre-tax income. And, in the case of eligible EVs and PHEVs, all the vehicle costs are deducted entirely from your pre-tax salary.
Start saving with a Novated Lease
Ready to see how much you could save with a Novated Lease on a used car? Get a quick estimate with our novated leasing calculator. Simply select the ‘I have a budget in mind’ and enter the amount you’re looking to pay for your used car and our calculator will estimate how much you could save with a Novated Lease. Alternatively, get in touch with our team today to explore your options.