Electric vehicles (EVs) have gained significant traction in recent years, with their growing popularity driven by advancements in technology, environmental concerns, and government incentives. As more individuals and businesses consider transitioning to EVs, it's crucial to explore the various financing options available. One such option is electric vehicle novated leasing, which offers unique advantages for both employers and employees. In this comprehensive guide, we will delve into the intricacies of electric vehicle novated leasing, providing you with a thorough understanding of its benefits, cost comparisons, and the steps involved in acquiring an EV through this financing method.

Understanding Novated Leases

Before we delve into the specifics of electric vehicle novated leasing, let's start by understanding the concept of novated leases in general. A novated lease is an ATO-approved finance product that allows employees to package their vehicle expenses, including finance repayments and running costs, using pre-tax salary contributions. This arrangement offers significant tax savings and allows employees to maximize their take-home pay.

Novated leasing has been around for over three decades and was initially popular among government and health departments. However, its appeal has since expanded to various industries, including defense, education, and most government departments. Corporate employers also adopted novated leases to free up capital and reduce fringe benefits tax (FBT) obligations, which are levied on company vehicles.

Advantages of Electric Vehicle Novated Leasing

Electric vehicle novated leasing offers several advantages over other financing options, making it an attractive choice for individuals and businesses alike. Let's explore some of the key benefits:

1. Tax Savings: One of the primary advantages of electric vehicle novated leasing is the potential for significant tax savings. Under the Electric Car Discount Bill, eligible electric vehicles can be paid for 100% pre-tax and are exempt from fringe benefits tax (FBT). This exemption applies to electric vehicles priced up to $89,332 (inc GST) for the 2023/24 financial year. Plug-in hybrid vehicles also enjoy FBT exemption until 1 April 2025, further incentivizing their adoption.
2. Lower Operating Costs: Electric vehicles are known for their lower operating costs compared to their internal combustion engine counterparts. With novated leasing, employees can benefit from reduced fuel and maintenance expenses, as well as potential savings on registration renewals and comprehensive insurance.
3. Environmental Benefits: By opting for an electric vehicle, individuals and businesses contribute to reducing greenhouse gas emissions and promoting sustainable transportation. Novated leasing provides an avenue for greater EV adoption, thus making a positive impact on the environment.
4. Flexibility and Convenience: Novated leasing offers flexibility in terms of vehicle choice, as employees have the freedom to select the make and model that suits their needs. Additionally, the bundling of finance repayments and running costs into a single payment simplifies budgeting and provides convenience.

Comparing Costs: Novated Lease vs. Cash Purchase

To further understand the financial advantages of electric vehicle novated leasing, let's compare the costs involved in a novated lease and a cash purchase. For this comparison, we will consider a Tesla Model Y (RWD) registered in Victoria, based on a $90,000 gross annual salary and an estimated travel distance of 15,000 km per annum over a 5-year lease term.

Novated Lease Costs

In a novated lease, employees are required to make weekly out-of-pocket payments, including balloon payments at the end of the lease term. The total cost of a novated lease includes the out-of-pocket costs and the residual value at the end of the lease. Let's break down the costs for our Tesla Model Y example:

• Novated Lease Out of Pocket Costs plus Residuals (Balloon Payments): ($247.99 per week x 52) x 5 = $64,477.40
• Residual Value at the end of the Novated Lease: $20,099.00
• Total Cost of Novated Lease: $64,477.40 + $20,099.00 = $84,576.40

Cash Purchase Costs

For a cash purchase, the total cost includes the drive-away price of the vehicle and the identical budgeted running costs. Let's calculate the costs for our Tesla Model Y example:

• Tesla Model Y (RWD) Drive-Away Price (registered in Victoria): $71,064.00
• Identical Running Cost budgets to novated lease: $23,306.14
• Total Cash Cost: $71,064.00 + $23,306.14 = $94,370.32

As evident from the comparison, the total cost of a novated lease is significantly lower than that of a cash purchase. The tax savings achieved through novated leasing contribute to this cost advantage. It's important to note that these figures are based on specific assumptions and can vary depending on individual circumstances.

Understanding Salary Sacrifice in Novated Leases

To comprehend the financial benefits of electric vehicle novated leasing, it's essential to understand the concept of salary sacrifice. In a novated lease, the employee's finance repayments and running costs are bundled into a single payment, which is deducted from their pre-tax salary. This arrangement allows employees to obtain a tax benefit on the costs they will incur for their vehicle.

Under a novated lease, employees have the opportunity to maximize their take-home pay by reducing their taxable income. This is achieved through various tax savings, including GST savings on the purchase price and running costs, as well as income tax savings. Let's explore each of these tax savings in more detail:

1. GST Savings: Novated leasing enables employees to save on Goods and Services Tax (GST) off the purchase price of the vehicle. For example, in our Tesla Model Y case study, the GST savings amount to $6,109.99. Additionally, GST savings on the running costs over the lease term can further contribute to reducing expenses.
2. Income Tax Savings: Through novated leasing, employees can also benefit from income tax savings. By salary sacrificing finance repayments and running costs, employees reduce their taxable income, resulting in lower income tax obligations. In our Tesla Model Y example, the income tax savings amount to $33,800 over the 5-year lease term.

It's important to consult with a novated lease specialist to tailor the budgeted items according to individual requirements. This flexibility ensures that employees are paying for the vehicle expenses they will incur while obtaining maximum tax benefits.

Budgeting in Electric Vehicle Novated Leasing

In electric vehicle novated leasing, budgeting plays a crucial role in ensuring a smooth and cost-effective experience. Budget line items encompass various expenses associated with the vehicle, including EV charging, vehicle servicing, comprehensive insurance, replacement tires, roadside assistance, and registration renewals.

The Australian Taxation Office (ATO) has introduced a "shortcut method" that allows drivers to claim 4.2 cents per kilometre for charging their EV. This equates to $630 per annum or approximately $12.12 per week for a travel distance of 15,000 km.

The Alliance Leasing salary packaging account serves as a central account where employees contribute pre-tax money from each pay to cover their vehicle expenses. These funds can be utilized to pay for the budgeted items, ensuring that employees obtain tax benefits on their vehicle costs.

It's important to note that budget line items can be adjusted at the start and during the lease term to accommodate changes in driving habits. For example, if an individual starts driving more, they can contribute additional funds to cover the actual costs. Conversely, if someone drives less, they have the flexibility to contribute less to the salary package. At the end of the lease, any unused funds are returned to the employee, ensuring that they only pay for the expenses incurred.

Getting Started with Electric Vehicle Novated Leasing

Now that we've explored the benefits and cost comparisons of electric vehicle novated leasing, you may be wondering how to get started. The process involves several steps, which we will outline below:

1. Research and Consultation: Begin by researching different novated lease providers and understanding their offerings. It's essential to choose a reputable provider with expertise in electric vehicle novated leasing. Once you have shortlisted potential providers, schedule consultations to discuss your specific requirements, including vehicle preferences and budget considerations.
2. Vehicle Selection: Based on your preferences and budget, work with your novated lease provider to select the electric vehicle that best suits your needs. Consider factors such as range, charging infrastructure, and any specific features you require.
3. Financial Assessment: Your novated lease provider will conduct a financial assessment to determine the feasibility of the lease arrangement. This assessment will consider factors such as your salary, budget, and potential tax savings.
4. Lease Application: Once the financial assessment is complete, you can proceed with the lease application. This involves providing necessary documentation, such as proof of income and identification, to initiate the process.
5. Approval and Vehicle Delivery: After your lease application is approved, your novated lease provider will coordinate with the dealership to order and deliver your chosen electric vehicle. They will also assist with registration and insurance processes, ensuring a smooth transition.
6. Enjoy Your Electric Vehicle: Once your electric vehicle is delivered, you can start enjoying the benefits of electric vehicle novated leasing. Take advantage of the tax savings, lower operating costs, and environmental benefits that come with driving an EV.

Conclusion

Electric vehicle novated leasing offers a compelling financing option for individuals and businesses looking to transition to electric vehicles. With its tax savings, lower operating costs, and environmental benefits, novated leasing provides a comprehensive solution that maximizes take-home pay while promoting sustainable transportation. By understanding the advantages and cost comparisons, as well as following the necessary steps to acquire an EV through novated leasing, you can make an informed decision and embark on your electric vehicle journey with confidence.

Remember, before making any financial decisions, it's crucial to consult with experts and consider your specific circumstances to ensure the suitability and feasibility of electric vehicle novated leasing for your needs.

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Additional Information: Alliance Leasing is a leading provider of electric vehicle novated leasing solutions. With our expertise and commitment to customer satisfaction, we can guide you through the process and help you make the most of the benefits offered by electric vehicle novated leasing. Contact us today to get started on your electric vehicle novated leasing journey!