Salary Sacrificing a Used Car in Australia: Your Guide

Key Takeaways

• Yes, you can typically salary sacrifice a used car in Australia through a novated lease.
• This can offer tax benefits by reducing your taxable income.
• The car must meet certain criteria, often including age limits, set by the novated lease provider.
• Simple Loans helps you compare novated lease options for used cars from various providers.
• This is general information only and not financial guidance. Consider your own circumstances.

Many Australians are looking for smart ways to manage their finances, and for those needing a car, salary sacrificing often comes up. But what about used cars? Can you salary sacrifice a used car in Australia, and if so, what are the benefits and things to consider?

At Simple Loans, your finance specialist, we understand these questions. While Simple Loans is not a lender, we act as your finance comparison tool, partnered with over 50 Australian lenders and novated lease providers to help you navigate your options. Let's explore the world of salary sacrificing a used car.

What is Salary Sacrificing (Novated Lease)?

Salary sacrificing a car, often done through a novated lease, is an arrangement between you, your employer, and a finance company. Essentially, your employer pays for your car finance and running costs (like fuel, insurance, and maintenance) directly from your pre-tax salary. This reduces your taxable income, potentially leading to tax savings.

A novated lease is a three-way agreement:

1. You (the employee): You choose the car and use it.
2. Your Employer: They make the lease payments and running cost deductions from your pre-tax salary.
3. The Financier (Leasing Company): They own the car during the lease term and receive the payments.

This structure can make car ownership more affordable and convenient, as many of the associated costs are bundled into one regular payment from your salary.

Can You Salary Sacrifice a Used Car in Australia?

The short answer is: Yes, typically you can salary sacrifice a used car in Australia.

While new cars are a common choice for novated leases, many providers also allow you to include used vehicles. This opens up a wider range of options and can be particularly appealing if you're looking for a more budget-friendly vehicle or a specific make and model that's no longer available new.

Key Considerations for Used Cars in a Novated Lease:

• Age Limits: Novated lease providers often have age restrictions for used vehicles. For example, they might require the car to be no older than 5 or 7 years at the start of the lease, and sometimes no older than 10-12 years at the end of the lease term. These limits vary between providers.
• Vehicle Condition: The car will typically need to pass an inspection to ensure it's in good working order and roadworthy.
• Kilometre Limits: Similar to age, there might be limits on the maximum kilometres a used car can have when entering a novated lease.
• Valuation: The car's market value will be assessed to ensure it aligns with the finance amount.
• Employer Participation: Your employer needs to offer novated leasing as part of their employee benefits program. If they don't, it's worth discussing with them.

Benefits of Salary Sacrificing a Used Car

Choosing to salary sacrifice a used car can offer several advantages:

• Potential Tax Savings: By paying for your car and its running costs from your pre-tax income, you could reduce your taxable income, meaning you pay less income tax.
• Lower Purchase Price: Used cars are generally more affordable than new ones, making them a more accessible option for salary packaging.
• Reduced GST on Running Costs: For GST-registered employers, the GST on the running costs of the vehicle (fuel, maintenance, etc.) may be recoverable, which can translate to further savings.
• Budget Management: All your car-related expenses are bundled into one regular payment, simplifying your budgeting.
• Flexibility: You get to choose the used car that suits your needs and budget, as long as it meets the provider's criteria.

How Does it Work with Simple Loans?

Simple Loans is your finance comparison tool. We do not offer novated leases directly, as we are not a lender or an ACL holder. Instead, we connect you with novated lease providers who can assess your eligibility and provide indicative quotes.

Our process typically involves:

1. Enquiry: You provide us with some basic information about your employment, income, and the type of car you're interested in (new or used).
2. Comparison: We use our network of over 50 Australian lenders and novated lease providers to find options that might suit your circumstances.
3. Indicative Quote: Based on the information provided, we can help you get an indicative quote from a novated lease provider. This is not a binding offer and is subject to full assessment.
4. Guidance: We can help you understand the different options and what each might entail.

To get started, you can explore our quick quote tool or learn more about car loans and equipment finance options.

Important Considerations and Compliance

• Eligibility Criteria: Eligibility for a novated lease, whether for a new or used car, depends on your individual circumstances, your employer's willingness to offer the benefit, and the criteria of the novated lease provider.
• Fringe Benefits Tax (FBT): While novated leases offer tax benefits, they are subject to FBT. However, the statutory formula method often used for cars can significantly reduce the FBT liability, especially with higher private use. Your novated lease provider will explain how FBT applies.
• End-of-Lease Options: At the end of the lease term, you typically have options such as paying the residual value and owning the car, trading it in for a new lease, or selling it.
• Fees and Charges: Be aware that fees and charges may apply to novated leases, including establishment fees, administration fees, and potentially early termination fees. These will be outlined by the novated lease provider. Comparison rates may vary. Check with your lender.
• This is general information only and not financial guidance. Consider your own circumstances before making decisions.

Frequently Asked Questions (FAQ)

Q1: What's the maximum age a used car can be for a novated lease?

A1: This varies by novated lease provider, but typically, cars need to be no older than 5 to 7 years at the start of the lease, and sometimes no older than 10-12 years at the end of the lease term. It's best to check with the specific provider.

Q2: Can I salary sacrifice a car I already own?

A2: Yes, in some cases, you can arrange a 'sale and leaseback' arrangement where the novated lease provider buys your car and then leases it back to you. This allows you to include your existing vehicle in a novated lease arrangement. Eligibility criteria apply.

Q3: What if my employer doesn't offer novated leasing?

A3: If your employer doesn't currently offer novated leasing, it's worth discussing it with them. Many novated lease providers can help employers set up the necessary arrangements, as it can be a valuable employee benefit at no cost to the employer. Simple Loans can help connect you with providers who can guide your employer.

Salary sacrificing a used car can be a smart financial move for many Australians, offering potential tax benefits and simplifying car ownership costs. Simple Loans is here to help you explore your options. While we don't offer financial guidance, we act as your finance comparison tool, connecting you with providers who can give you an indicative quote and assess your eligibility. Our assessment is free, and there are no upfront costs. Any lender fees are included in repayments.

Ready to explore your options?

Get a free assessment today and see how salary sacrificing a used car might work for you. Eligibility criteria apply.