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Looking to reduce the cost of new car ownership? Leasing could be the answer

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A novated lease means regular repayments on a car, but that also includes fuel, registration, insurance and more.
A novated lease means regular repayments on a car, but that also includes fuel, registration, insurance and more.
Neil Dowling
Contributing Journalist
25 May 2022
5 min read

The good news is that a competitive car market has given buyers a huge choice of makes and models to get exactly the car they want.

You probably already know the bad news – getting into a car can take months and months longer than it did before COVID and, just to add salt to the wound, expect to pay a lot more. Oh, and fuel prices are through the roof.

But opting to lease a new vehicle could be way to save some crucial dollars, according to car finance broker Michael Mitrovits of One Car Group.

Speaking to CarsGuide, Mr Mitrovits laid out the pros and cons of using a novated lease – like renting a car for one-to-five years with repayments and the option of buying the car outright at the end of the term – to finance a car purchase.

The agreement is between yourself, your employer and the lease company.

Simply, your employer takes money from your wage and makes payments - usually fortnightly or monthly - for the vehicle and its running costs.

Mr Mitrovits said that some of the money from your income is made before tax, so you don’t pay a tariff on that portion, which reduces your taxable income, leaving you with more money in the pocket.

Your vehicle subject to a novated lease is also financed excluding GST, saving lots - potentially thousands of dollars - in financing costs.

A novated lease could also present better budget control, as the payment from your salary (weekly, fortnightly or monthly) includes all running costs of the car – registration, servicing, insurance, maintenance, fuel, tyres and even car washes.

The fuel issue is timely, too.

Fleet Network managing director Frank Agostino said: “A novated lease allows you to use your pre-tax income to pay for fuel while minimising the GST you pay, effectively saving up to 40 per cent at the bowser.”

The size of the savings also depends on your income, and CarsGuide highly recommends talking to a finance expert about what suits you best.

However, it’s not all roses. You will be up for Fringe Benefits Tax (FBT). This is because the Australian Taxation Office (ATO) deems that your employer is giving you a benefit outside your normal wage.

But lease managers point out that the FBT can be offset by deductions from your post-tax salary. This reduces the taxable value of the benefit and as such reduces the FBT payable to zero.

This year, Australian car subscription service company Carbar introduced a subscription novated lease that it said provides the same benefits as a novated lease in terms of salary packaging and deductions, but offers the flexibility for users to end the service with only two-week’s notice and the ability to switch vehicles.

The vehicle switch option is one of the attractions of a subscription service, which in this way, acts like a rental contract. It means you may need a small car for commuting, but then switch to a large 4WD for holidays.

It’s also the perfect way to test an electric vehicle before committing to buying one.

But even getting into a new car in the current environment requires a lot of patience.

Mr Agostino said two years ago, his clients used to select a new vehicle and pick it up a week or two later.

“Now, there sometimes is no due date for collection and some clients have to wait 12 months for their new vehicle,” he told CarsGuide.

“As a business, we are advising clients to start looking now. If you get to the end of the lease and then start to look for a car, it could cost $15,000-20,000 more and come with a long delay.

“We can see these delays continuing one, maybe two years down the track.”

Mr Agostino said his company’s key brand is Toyota “and there are heavy delays”

“Our order book has caught up with itself and in terms of demand, it’s Prado, HiLux, LandCruiser and RAV4 that are the most popular models.

RAV4 can be 12 months away, same with the 70 Series while it can be seven or eight months for the Prado and HiLux.

“With our clients, we are heavily invested in ensuring they don’t pay today’s prices.

“With Prado, for example, it can be eight months away so we’ll value the existing lease car.

“It may have a $20,000 payout but in this current market, where used-car prices are so strong, it may be worth $45,000 so the payout will be $25,000 - and that’s cash back for the owner.

“If the market shifts in say six or eight months, we would revalue the trade and what we have found, the trade is staying the same because new cars are so hard to get. The new car is locked in after a purchase order is placed by us.

“The average buyer who is not in a lease doesn’t have this ability, so they have to wear the price rises.”

Mr Agostino also said that new-car prices have also moved up, sometimes as much as $25,000 compared with the same car they may have leased three or four years before.

“The upside for our clients is that we lock in the prices when the vehicle is ordered, which is something not available to most buyers,” he said.

Neil Dowling
Contributing Journalist
GoAutoMedia Cars have been the corner stone to Neil’s passion, beginning at pre-school age, through school but then pushed sideways while he studied accounting. It was rekindled when he started contributing to magazines including Bushdriver and then when he started a motoring section in Perth’s The Western Mail. He was then appointed as a finance writer for the evening Daily News, supplemented by writing its motoring column. He moved to The Sunday Times as finance editor and after a nine-year term, finally drove back into motoring when in 1998 he was asked to rebrand and restyle the newspaper’s motoring section, expanding it over 12 years from a two-page section to a 36-page lift-out. In 2010 he was selected to join News Ltd’s national motoring group Carsguide and covered national and international events, launches, news conferences and Car of the Year awards until November 2014 when he moved into freelancing, working for GoAuto, The West Australian, Western 4WDriver magazine, Bauer Media and as an online content writer for one of Australia’s biggest car groups. He has involved himself in all aspects including motorsport where he has competed in everything from motocross to motorkhanas and rallies including Targa West and the ARC Forest Rally. He loves all facets of the car industry, from design, manufacture, testing, marketing and even business structures and believes cars are one of the few high-volume consumables to combine a very high degree of engineering enlivened with an even higher degree of emotion from its consumers.
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