Kia EV5 novated lease

By using your pre-tax salary for lease repayments you could save thousands of dollars on the costs of buying a car.

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Rebecca Pike

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Key takeaways

  • A novated lease is a salary sacrifice arrangement where your car lease repayments are taken from your pre-tax salary, reducing your taxable income.
  • The Kia EV5 is a mid-size electric SUV available for novated lease, offering even more tax benefits as an electric vehicle.
  • Depending on any vehicle upgrades and the specific terms of your novated lease, it can often be much more cost-effective than taking out a car loan.

What is a novated lease?

A novated lease is a three-way agreement between an employee, the employer, and a leasing company.

The employer agrees to make monthly repayments, which it takes out of the employee's salary. Crucially, it takes those repayments from the employee's pre-tax salary. This reduces the employee's taxable income.

It can lead to substantial tax savings and often includes vehicle expenses like maintenance and insurance.

Why choose a novated lease for the Kia EV5?

The Kia EV5 is an electric mid-size SUV which is available for novated lease. You might choose this for a number of reasons:

  • Novated leasing can make buying a new car more achievable.
  • You can save on repayments because you're using pre-tax income.
  • When you buy an electric vehicle like a Kia EV5 you won't have to pay Fringe Benefits Tax (FBT).
  • Depending on any upgrades you include, the cost of the Kia EV5 is generally under the Luxury Car Tax (LCT) threshold.

Kia EV5 novated lease cost vs buying outright

When you take out a novated lease, the repayments come out of your pre-tax salary. This reduces your taxable income and means it will often cost you less to buy a car that way.

Let's take a look:

Fully maintained novated lease

  • You're on an annual salary of $100,000, which is a monthly pre-tax income of $8,333.33.
  • You choose a Kia EV5 AIR 2WD priced at $61,170 on a 5 year fully maintained novated lease. You estimate you'll be driving 10,000kms a year.
  • Your monthly lease repayments are $946.83 a month, which comes out of your pre-tax salary and includes costs like insurance, registration and 1 set of tyres.
  • Your taxable income is reduced to $7,386.50, which means your take-home pay falls to $5,787.33 a month from $6,431.33.
  • This means your $946.83 lease repayment only reduces your net income by $644.
  • At the end of the lease you can pay a residual value of $19,302 to own the car.
  • Factoring in all costs and tax savings, the total effective cost to you is $56,836.

Buying a Kia EV5 through a car loan

  • You borrow $61,170 through a 5 year car loan with a personalised interest rate of 9%.
  • Your monthly repayments, assuming no loan fees, will be $1,270.
  • This comes out of your post-tax salary, meaning you only have $5,161.33 left.
  • In total, your car loan will cost you $76,188.
  • You still need to pay separately for insurance, registration and any repairs or maintenance which would cost thousands more each year.

Verdict: In this example, a novated lease costs this person thousands of dollars less than a car loan, even before counting the running costs the lease already covers.

Who benefits most from a Kia EV5 novated lease?

  • Someone seeking the savings and benefits of an electric vehicle.
  • A full-time employee with a permanent and stable job.
  • Mid-to-high income earners who can afford the consistency of the repayments as well as the lower take-home salary.
  • Those who are happy to include all of their fuel and maintenance costs through a fully maintained novated lease.

Salary sacrifice and tax treatment

Novated lease repayments are taken from the employee's pre-tax salary. This means the repayments are effectively managed by the employer and the employee doesn't need to do anything.

As well as the logistical benefit, this means the employee's taxable income is reduced. The biggest benefit of this is that the employee loses less of their take-home income than if they were to make the payments post-tax.

Pros and cons of a Kia EV5 novated lease

Pros:

  • As an electric vehicle, the Kia EV5 is exempt from Fringe Benefits Tax (FBT) which is a cost often passed on to the employee.
  • You lower your taxable income. If you take out a fully maintained novated lease, you'll save even more.
  • It's a cost-effective and manageable way of buying an electric vehicle.
  • You still have the option of buying the car at the end of the lease, but you can also choose a new lease with a different vehicle.

Cons:

  • You don't own the car until you've paid the residual value at the end of the lease, so there are restrictions on being able to modify the vehicle.
  • If you want to own the vehicle at the end of the lease you'll need to pay a one-off residual cost which can be a large financial burden.
  • You might have less control over where you buy fuel, get your insurance or get your car serviced.

Alternatives to a Kia EV5 novated lease

    • Standard car loan:

You can buy the car by taking out a car loan and making principal and interest repayments.

    • Dealer finance:

Car dealerships will often have finance options. They might offer lower monthly repayments but you'll still need to pay a residual payment at the end of the term.

    • Buying outright:

If you have the funds saved up you can simply buy the car in cash! It's a large chunk of money to lose in one go though, so make sure you won't end up with no emergency savings or financial buffer.

    • Subscription services:

If you're not worried about ever owning the car, you could opt for a car subscription instead. You can borrow a car for a minimum of 30 days and your fees will cover the cost of roadside assistance, comprehensive insurance, and service and maintenance.

Frequently asked questions about Kia EV5 novated leasing

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Editor, Money
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Rebecca Pike is Finder’s money editor, with over 7 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise and 7News, Today and 9News, as well as Sky News, Channel 10 and across radio and print. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines. See full bio

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