How an Audi Novated Lease Works: Tax Impacts and Cost Breakdown

Key Highlights

• An Audi novated lease allows you to finance your new car and its running costs through salary packaging, reducing your taxable income.
• This arrangement can lead to significant tax savings by paying for your vehicle from your pre-tax salary.
• You can save on the Goods and Services Tax (GST) applied to the car’s purchase price, making your Audi more affordable.
• A novated lease bundles all your vehicle expenses, including fuel, insurance, and servicing, into one simple payment.
• Understanding Fringe Benefits Tax (FBT) is key, but it can often be offset through the lease structure.
• The lease agreement is a simple three-way arrangement between you, your employer, and the leasing provider.

Introduction

Driving an Audi means enjoying luxury, performance, and advanced technology. With an Audi novated lease, you can drive a new Audi while making a smart financial choice. This salary packaging option lets you pay for your car and running costs with pre-tax income, reducing your income tax and saving thousands. Understanding the process and Fringe Benefits Tax (FBT) is key to driving your dream car for less. To apply for an Audi novated lease, you’ll typically start by choosing your preferred Audi model and getting a quote from a provider. Next, your employer, the finance company, and you will sign a novation agreement outlining the lease terms. After approval, the vehicle is purchased on your behalf and leased to you, with payments and running costs conveniently deducted from your pre-tax salary.

What Is an Audi Novated Lease and How Does It Work in Australia?

An Audi novated lease is a three-way agreement between you, your employer, and a leasing company like Leaselab. It lets you bundle the cost of your Audi and its running expenses into one pre-tax payment deducted from your salary.

When choosing a novated lease for an Audi, some common mistakes to avoid include not fully understanding the terms of the agreement, overlooking additional fees, ignoring potential tax implications, and failing to compare quotes from multiple leasing companies. It’s important to carefully review all details and consult with experts to ensure the lease suits your individual circumstances.

You choose your Audi, the leasing company sets up the lease, and your employer pays directly from your payroll. This arrangement simplifies car ownership and offers significant tax benefits compared to buying or taking out a traditional loan. Next, we’ll look at how the agreement works and each party’s role.

Understanding the Novated Lease Agreement Structure

The novated lease agreement forms the basis of your salary packaging. It sets a fixed term—usually one to five years—during which you make regular payments covering both your Audi’s financing and running costs.

A key feature is the residual value, a lump sum due at the end of the lease that reflects the car’s remaining worth. At lease end, you can pay this amount to own the car, refinance it, or sell the vehicle.

Your novated lease package is tailored to you. It combines lease payments with an employee contribution from your post-tax salary to help offset any Fringe Benefits Tax (FBT), maximizing your savings.

Key Parties Involved: Employee, Employer, and Leaselab

A novated lease involves three key parties. As the employee, you choose your preferred Audi, drive it, and enjoy benefits like tax savings and convenience.

Your employer facilitates the process by deducting payments from your salary and forwarding them to the leasing company. For Australian employees, this is a simple administrative task for any employer with an ABN, offering staff a valuable benefit at no extra cost.

Leaselab manages everything—from sourcing your vehicle at a competitive price to setting up the lease and handling administration. We process running cost claims and provide clear reporting, making your novated lease completely hassle-free.

Tax Impacts of an Audi Novated Lease

The main advantage of an Audi novated lease is its tax benefits. By using salary sacrifice to pay for your car, you lower your taxable income and pay less income tax, which can boost your take-home pay or make a luxury vehicle more affordable.

However, since the car is a non-cash benefit from your employer, it may be subject to Fringe Benefits Tax (FBT). Understanding these tax advantages and how FBT works is essential to maximizing your lease benefits. Let’s explore salary packaging and how FBT is calculated.

Salary Packaging Advantages and Tax Savings

Salary packaging is the key to unlocking the financial benefits of a novated lease. It lets you pay for your Audi and its running costs from your pre-tax salary, reducing your taxable income and lowering your income tax.

This approach offers significant tax savings throughout the lease term, including:

• GST Savings on Purchase: No GST on your Audi’s purchase price, saving you thousands upfront.
• Income Tax Reduction: Pre-tax payments lower your taxable income, so you pay less in income tax each year.
• GST Savings on Running Costs: You also avoid GST on packaged expenses like fuel, servicing, and insurance.

Fringe Benefits Tax (FBT) Explained for Audi Novated Leases

Fringe Benefits Tax (FBT) is a tax employers pay on certain employee benefits, like company cars. A novated lease counts as a fringe benefit and can attract FBT. However, novated leases are structured to eliminate this liability for both you and your employer.

This is done through the Employee Contribution Method (ECM), where part of your lease payment comes from your post-tax salary. This contribution offsets the car’s taxable value, reducing your FBT liability to zero.

How ECM manages FBT:

• Part of your lease payment is made after tax.
• This reduces the taxable value of the car benefit.
• Done correctly, it cancels out FBT liability, preserving all tax savings.

Detailed Cost Breakdown of an Audi Novated Lease

Understanding the cost breakdown of an Audi novated lease shows exactly where your money goes. Unlike a standard car loan that covers only the principal and interest, a novated lease bundles financing with all budgeted running costs.

This all-in-one payment simplifies your finances by turning multiple, unpredictable expenses into a single, fixed deduction from your salary. Here’s a look at the typical upfront costs, monthly payments, and running expenses included in your lease.

Upfront Costs, Monthly Payments, and Running Expenses

An Audi novated lease offers minimal upfront costs, letting you drive your new car without a large deposit. Fixed lease payments make budgeting easy and predictable.

These payments cover all major car expenses, so you won’t face surprise bills for servicing or registration—they’re included in your budget.

Your lease payment typically covers:

GST savings apply where eligible.

Estimating Costs Using Audi Novated Lease Calculators

The easiest way to estimate your potential savings and monthly payments is by using an online novated lease calculator. These tools quickly provide estimates based on key details about your finances and the Audi you want.

Remember, these figures are only estimates. Your actual lease cost will depend on your vehicle’s final specifications. For the most accurate breakdown, request a personalized quote.

A calculator will typically ask for:

• The price of your chosen Audi
• Your annual salary
• Your estimated annual kilometers

Special Considerations for Audi Electric and Hybrid Models

With growing interest in sustainable driving, many are exploring Audi’s electric and hybrid models. For novated leasing, these vehicles have unique considerations. The Australian government encourages EV adoption with incentives, mainly an FBT exemption for eligible vehicles.

However, this exemption is limited by the Luxury Car Tax (LCT) threshold. Most Audi electric models, like the e-tron range, exceed this cap and don’t qualify for the full FBT exemption. Still, they retain other tax benefits available through a novated lease.

Unique Tax Outcomes and Incentives for EVs and Hybrids

The main incentive for leasing an EV or plug-in hybrid through a novated lease is the potential FBT exemption, offering significant tax savings. However, this only applies to vehicles priced below the Luxury Car Tax (LCT) threshold for fuel-efficient models.

Audi’s current EV and hybrid models exceed this threshold and do not qualify for the FBT exemption—a key consideration when evaluating your options.

Still, leasing a luxury EV like an Audi offers valuable tax benefits:

• You save GST on the vehicle’s purchase price.
• Running costs—charging, servicing, insurance—can be paid with pre-tax dollars.
• Standard salary packaging benefits, reducing taxable income, still apply.

Conclusion

In summary, understanding how an Audi novated lease works is key to smart financial planning and maximizing benefits. These leases offer unique tax advantages, especially with salary packaging and incentives for electric or hybrid models. Knowing all costs—from upfront to ongoing—helps you make informed decisions that fit your lifestyle and budget. Whether for personal or business use, an Audi novated lease provides flexibility and potential savings. For more details or personalized guidance, contact us for a free consultation on finding the best lease option for you.