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Novated leasing is something that's often misunderstood. We breakdown some common misconceptions and answer your key questions.

In our last edition of NT motor, we explored some of the benefits of salary packaging your car, which is also known as novated leasing.

As a quick recap, a novated lease is a way you can finance a car. It involves making repayments from your pre-tax salary, with approval from your employer under a salary sacrifice arrangement.

The benefits include reducing your taxable income, saving GST on a vehicle's running costs and original purchase price and the ability to bundle your vehicle's expenses into one payment.

Is it actually my car?

Yes, it is. Unlike other lease arrangements, at the end of the term you can buy the car outright for the previously agreed purchase price. If the car is worth more than the listed value, it doesn't affect how much you pay for it.

What's a residual value?

All novated leases are required to have a residual value at the end of the term of the loan; it represents the value of the vehicle at the end of the lease. This value is calculated at the start of the lease and helps to reduce your cost per pay cycle.

How does the residual value impact the sales process?

It's no different to selling a vehicle under a loan agreement. For example, if your residual value was $11,000 and you sold the vehicle for $14,000, there is a $3000 difference. You get to keep the $3000, tax free.

What if my car is sold for less than the residual value and I make a loss?

It is a risk, but by getting the best possible purchase price initially, the value is kept as low as possible from the outset. It also follows general resale rules, for example, a green car with red interior is going to be harder to sell than the silver car with black trim.

What happens at the end of a novated lease?

There are a range of options, depending on your circumstances. You can:

Refinance and repackage by extending the lease period. 
Trade in your vehicle for a new car. The dealer will pay out funds owing on the residual value and any balance remaining will be transferred to you. 
Sell the car, with the residual value payment being made directly to the lender. Any amount above residual value is yours to keep, similarly a shortfall is your responsibility. The surge in used car pricing has made this a popular way to maximise return. 
Payout and own; you pay the residual value and continue driving the vehicle. The vehicle is already registered in your name and there are no requirements to pay stamp duty. 

Where can I find more information?

The novated leasing team at AANT Salary Packaging are on hand to help you drive your income further and maximise the return on the vehicle when it comes to the end of the lease. To find out more about AANT Salary Packaging, or to get a quote, call the team on 1300 946 527 or check out our page.

Is a novated lease right for you?

Use our Novated Lease Calculator to see how much tax you can save on your next vehicle.