Novated lease on a used car: How does it work?
A lot of people assume if you’re going to get a novated lease, you either need to buy a new car or you might as well get a new car because of the discounts you get. But here’s the thing, a used car novated lease is not only possible, it has exactly the same benefits.
Now, if you want to get a new car, that’s fine. It’s what most people do and a novated lease will make that car cheaper. But if you’re looking to buy a used car, you can absolutely do that through a novated lease. In fact, you can actually do a novated lease on a car you already own through a sale and lease back.
There are just a few extra things to factor in about the used car you’re looking at.
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How old can the vehicle be for a used car novated lease?
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You can get a novated lease on a used car as long as it’s less than 12 years old at the end of the lease. So just take whatever the length of your lease is and add that to the current age of the vehicle and if the answer is less than 12, you’re good to go.
Beyond that, the eligibility is the exact same as a novated lease for a new car.
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Will I still get a GST with a used car novated lease?
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This one depends on where you buy the car. If it’s a used car from a dealer, yes the GST discount applies in the same way to a used car novated lease. If you buy through a private sale and the seller is not GST-registered (which they almost certainly won’t be) they won’t be including GST in the sale price anyway, so there is no discount.
You’re not technically paying extra on a private sale compared to a used car from a dealer. It just means that if you’re looking at used car options for a novated lease, dealers basically have a 10% head start on price over private sellers.
Unless you find a car being sold privately that’s more than 10% cheaper than the equivalent cars available through a dealer, the dealer will be cheaper once you factor in the GST discount.
But honestly, if you find the car you want for the lease and it’s a private sale, you’re not at any major disadvantage.
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What are the advantages of a used car novated lease?
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Here are the main benefits to a used car novated lease:
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GST discount on the car: That's 10% off the price that's advertised by the dealer.
Income tax savings: Your lease payments are deducted directly from your salary – this will include the running costs for the car.
GST discount on running costs: That's fuel/charging, insurance, servicing, tyres and rego.
Have your car sooner: Delivery times on some new cars are very long. If you find a used car that fits the bill, you could have it within days.
What are the disadvantages of a used car novated lease?
FBT exemption unlikely to apply (for now): If you’re buying a used EV, unless it was first registered after 1 July 2022, the Fringe Benefits Tax exemption won’t be available to you.
Is there still a residual on a used car novated lease?
Yes there is, and it works the same as the residual on a novated lease for a new car. The residual amount will be based on the ATO’s formula for calculating vehicle depreciation. At the end of the lease, you can pay the residual to own the car outright, or trade in the car and use the sale funds to clear the residual.
Depending on how old the car is at that stage, you could also refinance the residual by extending the lease term.
