Salary Packaging Australia
Eligible Vehicles

The vehicle that an employee chooses to novate may have implications on the tax effectiveness and financial benefit of their salary packaging arrangement. For example it is possible that a more expensive new vehicle may be cheaper to salary package than a less expensive used vehicle once all costs are considered. In addition some vehicles are considered to be ‘vehicles other than a car’ and will not be eligible for packaging under a Novated Lease using the Statutory Formula. For this reason, you should speak with one of Southgate’s salary packaging consultants before purchasing a vehicle.

Definition of a Car

The definition of a ‘car’ in relation to Novated Leasing under a salary packaging arrangements is:

  • A sedan, station wagon, panel van or utility (including 4-wheel drive vehicles);
  • Any other goods-carrying vehicle with a carrying capacity of less than 1 tonne; or
  • Any other passenger-carrying vehicle designed to carry fewer than nine passengers.

A vehicle that has a capacity of 1-tonne or more is deemed to be a ‘vehicle other than a car’ and cannot be salary packaged under a Novated Lease. This is because ‘vehicles other than a car’ are not treated concessionally for FBT purposes, resulting in a negative financial impact for the employee, which arises because the FBT payable is higher than the Income Tax saving achieved through salary packaging the vehicle.

New vehicles

Generally salary packaging a new vehicle is the fastest, easiest and most reliable way of establishing a Novated Lease. You have thousands of different makes and models to choose from that can be easily compared online through manufacturer websites and with Southgate consultants. Obtaining a new vehicle also has the benefit of driving a car with the latest safety technological features and highest safety and environmental ratings.

You should confirm with Southgate before committing to a new vehicle purchase as some new vehicle restrictions may apply under your employers policy, such as Car Depreciation Limits”. In addition the vehicle must meet the ATO’s vehicle requirements in order to be eligible for salary packaging.

Used vehicles

Southgate can arrange a Novated Lease on a used vehicle of your choice; however, there are various implications for used vehicles that should be taken into consideration before you make a choice. A used vehicle cannot be older than 12 years at the end of the lease term. For example, a used vehicle that is already 9 years old can only be financed under a Novated Lease for a maximum of 3 years. Further implications apply based on who the car is purchased from.

  • Registered Dealer
    Where a used vehicle is purchased from a registered dealer (or an ABN holder registered for GST), the financier is able to claim the GST (Input Tax Credits or ITCs) on the purchase price, and therefore you will only finance the GST-exclusive vehicle price. This means you will only pay interest on the GST-exclusive finance amount, saving you money across the term of the lease.
  • Private Individual
    Where a used vehicle is purchased from a private individual (someone who is not an ABN holder and is not registered for GST), there is no GST component on the purchase price, meaning there are no ITCs for the financier to claim to reduce the amount financed. For this reason, it is generally less financially beneficial to purchase a used car from a private individual, unless the vehicle is at least 10% cheaper than if it was purchased from a registered dealer.

    Other implications for privately purchased used vehicles may include: higher interest rates, applicable private sale fees, additional paperwork for you and the seller, and a vehicle inspection is required. It is recommended that you speak with a Southgate consultant who can inform you of the issues and implications before you purchase a used vehicle from a private individual.

  • Purchasing a Vehicle from your Employer/Work Colleague
    Sometimes an employer will offer their used fleet vehicles for sale to an employee, before offering them to the general public. Novating such a vehicle will have several implications on the tax effectiveness of your salary package. Where you elect to novate a vehicle previously owned by your employer, the FBT calculation is not based on the purchase price you paid, but the original purchase price paid by your employer. This also applies to a vehicle previously novated by a colleague with your existing employer, that you now wish to novate.

    When packaging such a car, it is only financially beneficial where the benefit of the cheaper price outweighs the higher FBT liability incurred by doing so. It is recommended that you speak with a Southgate consultant before purchasing such a vehicle, as it may be more beneficial to purchase a vehicle from another source or a new vehicle. Our consultants can provide quotations to show the implications of the different scenarios available to you.

Your Existing Vehicle (via sale-and-leaseback)

If you already own or have finance on an existing vehicle, you can access the substantial tax savings available with a Novated Lease via a sale-and-leaseback arrangement. A sale-and-leaseback is where the financier purchases the car from you and then leases it back to you for the finance term. Your vehicle will need to be inspected and valued; however the entire process is managed by Southgate and can have you saving money on your existing car in just a few days.