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Very simply, salary sacrificing is where your employer agrees to use part of your salary to pay off an expense. In many cases, that expense is a car loan.
Salary sacrificing comes from your pre-tax salary which means not only are the payments automatic, but you'll pay less in tax.
As long as your employer offers salary sacrificing, it can be a good alternative to buying the car outright or getting a car loan.
By using a novated lease you can salary sacrifice to buy a car. A novated lease is an agreement between an employee, an employer and a third party lease provider.
In a novated lease, car repayments will be deducted from your gross salary by your employer and paid to a third-party financing company.
You can choose between a fully maintained novated lease and a non-maintained novated lease. A fully maintained novated lease includes fuel and servicing costs as well as the lease repayments.
Once the lease term expires you can purchase the car or simply commence a new lease with a new car. Novated leases are available for between one and five years for both new and used vehicles.
Your employer needs to offer salary sacrificing as an option before you can even think about eligibility: and not every employer offers it.
But assuming your employer does offer salary sacrificing, you are generally eligible if you are on a salary package. You and your employer would need to check with individual providers around whether they accept international drivers and if they have minimum age restrictions.
The actual benefit of salary sacrificing for a car will depend on your earnings, the number of kilometres you drive each year and your marginal tax rate.
When you're looking at salary sacrifice options for your car, you can usually choose between non-maintained or fully maintained.
A fully maintained lease means the repayments of the lease as well as the running costs of the car come from your pre-tax salary.
But by using the employee contribution method (ECM), you could opt to pay for the running costs out of your post-tax income instead, rather than salary sacrificing.
The benefit of doing this is to lower the amount of fringe benefits tax owed.
As the fringe benefits tax rate is currently 47%, it's beneficial to most people to offset this with their post-tax income which will have likely been taxed at a lower rate.
Salary sacrificing is more beneficial for people who earn mid- to high incomes. Here are some of the drawbacks of salary sacrificing a car:
"I was ready to upgrade my old car when a friend suggested I look at salary sacrificing and leasing a car. I didn't know about this option, so I did some research and it's been a game-changer. I was paying $950 a month in repayments for my crappy old car. Now, I salary sacrifice, and the payments of just $500 a month automatically come out of my pay. I bought a brand new Tesla, so the added bonus is, I'm saving a fortune in petrol each week."
If you're an employer and you want to know more about offering salary sacrificing as an option, there are a few things to know.
Start by speaking to your finance and accounts team. Let them know you're looking to start working with a novated leasing broker. Some companies, like Toyota, offer this as part of their fleet management services.
Most novated leases are managed by an independent company that coordinates between you, your employer, the dealer and the financier.
If your employer offers salary sacrificing for a car, you should speak to the company's finance team to understand what the process looks like.
When it comes to applying, you'll need to know what type of car you would like and how many kilometres you expect to travel each year.
Anyone can ask about salary sacrificing, but it is an agreement between you and your employer. Your employer must agree to offer a car through salary sacrificing before you can take advantage of it.
There are no particular restrictions on cars available for salary sacrificing, but each provider will have their own list.
There are usually some conditions, namely that:
As long as the car meets those criteria and your financial advisor says it qualifies, you're okay. That might exclude some commercial vehicles, like heavy-duty utes, or minibuses.
Some car manufacturers, like Jaguar and Toyota, have web pages dedicated to novated leasing.
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