A novated lease can be a great way to finance your next vehicle while cutting back on the amount of income tax you’re liable to pay. That alone is enough to excite a growing number of Aussies, but did you know that you can bundle other car-related costs into your payments as well? That’s where a fully maintained novated lease comes in handy.
What is a fully maintained novated lease?
A fully maintained novated lease bundles the running costs of your vehicle into your regular salary deductions alongside your lease payments. Part or all of these can be paid from your pre-tax salary, depending on the car you’re leasing. These costs typically include:
- Fuel
- Registration
- CTP insurance
- Comprehensive insurance
- Servicing and maintenance
- Tyres
- Roadside assistance
Rather than managing these expenses separately, they are estimated upfront and incorporated into a single deduction per pay cycle. If you spend less than estimated over the course of the lease, the surplus is returned to you at the end of the term.
What isn’t included in a fully maintained novated lease?
Here are some expenses typically not covered under a fully maintained novated lease:
- Tolls and parking
- Traffic and speeding fines
- Modifications and accessories
- Excess kilometre charges
- Insurance excess
If you aren’t 100% sure what’s included in your novated lease, you can speak to your leasing specialist or representative to find out more.
Fully maintained novated lease vs non-maintained novated lease
The main alternative to a fully maintained novated lease is to opt for a non-maintained one instead. Under this arrangement, you’re responsible for organising all your on-road costs yourself and they aren’t involved in your salary sacrificing. You can see the key similarities and differences in the table below:
| Fully maintained | Non-maintained | |
|---|---|---|
| Lease payments deducted from pre-tax salary | Yes | Yes |
| GST removed from purchase price | Yes | Yes |
| Running costs bundled into repayments | Yes | No |
| Running costs paid from pre-tax salary | Yes (partial or full, depending on vehicle) | No |
| Freedom to choose service providers | Yes, subject to lease provider approval | Yes |
| Cost of lease payments | More expensive | Cheaper |
| End of term options | Buy, sell, trade in or refinance | Buy, sell, trade in or refinance |
How much do fully maintained novated leases cost?
The table below shows an example of how much you might expect to pay (and receive in tax benefits) for a fully maintained novated lease compared to a non-maintained lease, car loan and paying cash:
| Fully maintained | Non-maintained | Car loan | Cash | |
|---|---|---|---|---|
| Car purchase price | $54,545 | $54,545 | $60,000 | $60,000 |
| Running costs over 5 years | $40,000 | $40,000 | $40,000 | $40,000 |
| Finance cost (inc. interest and fees) | $55,620 | $55,620 | $69,815 | $60,000 |
| Tax saved over 5 years | $10,686 | -$1,314 | $0 | $0 |
| Novated lease cost comparison | $84,934 | $96,934 | $109,815 | $100,000 |
| Figures are for illustrative purposes only, based on annual gross salary of $90,000 and travelling 10,000km per year over a five-year term. Vehicle price of $60,000 drive away (exclusive of GST for novated leases), fuel price of $1.85. Compared to a five-year secured car loan of 6.20% p.a. | ||||
As you can see, a non-maintained novated lease in this situation actually increases your tax bill slightly, even though it’s still slightly cheaper than paying cash. However, both options still produce a lower net spend on the car and its finance than paying cash or taking out a loan.
The hidden cost of non-maintained novated leases
"Upping your tax bill, rather than cutting it back, can often happen with non-maintained novated leases unless you have an external accountant or bookkeeper who can manage and claim your running costs for you. However, when you factor in the hourly rate of one of these professionals, it’s clear to see why the vast majority of Aussies opt to bundle their running costs into their payments."
Fully maintained novated lease cost factors
There’s a wide range of variables that help determine how much your lease will cost you overall. These include:
- The purchase price of the vehicle
- The lease term
- The residual value agreed at the start of the lease
- Your income and marginal tax rate
- Whether FBT applies, which depends on the type of vehicle you're leasing
- Your estimated annual kilometre allowance, as a higher allowance increases the running cost budget built into the lease
- The cost of comprehensive insurance on the vehicle, which varies depending on the make, model, your age and your driving history
- Your fuel type and estimated fuel consumption
- The novated lease provider, as administration fees and fleet discounts vary between providers
- Your location, as registration costs and CTP insurance premiums differ from state to state
Fully maintained EV novated leases: how much can you save?
When it comes to fully maintained novated leasing, the biggest savings lie with electric vehicles. That’s due to their FBT-exempt status up to $91,387, which allows for 100% of your deductions to come out of your pre-tax income. You can see what effect that has when compared to a standard novated lease here:
| Fully maintained non-EV | Fully maintained EV | |||
|---|---|---|---|---|
| Car purchase price | $54,545 | $54,545 | ||
| Running costs over 5 years | $40,000 | $40,000 | ||
| Finance cost (inc. interest and fees) | $55,620 | $55,620 | ||
| Annual pre-tax payment | $7,124 | $19,124 | ||
| Annual post-tax payment | $12,000 | $0 | ||
| Tax saved over 5 years | $10,686 | $28,686 | ||
| Novated lease cost comparison | $84,934 | $66,934 | ||
| Figures are for illustrative purposes only, based on annual gross salary of $90,000 and travelling 10,000km per year over a five-year term. Vehicle price of $60,000 drive away (exclusive of GST), fuel price of $1.85 (or $0.35/kWh). | ||||
When factoring in your tax savings, a five-year fully maintained novated lease for a $60,000 EV with annual running costs of $8,000 would only set you back around $67,000 all up, compared to just under $85,000 for a non-EV on the same deal. That’s a saving of over $33,000 across your term compared to buying with cash.
Pros and cons of fully maintained novated leases
Pros
-
Consolidates your motoring costs into a single payment
Rather than managing fuel, insurance, registration and servicing separately, everything is rolled into one predictable deduction per pay cycle.
-
Maximises your pre-tax spending
Bundling running costs into the lease means more of your total motoring expenditure is paid from pre-tax salary, increasing your tax savings beyond what a non-maintained lease delivers.
-
Takes the admin off your hands
Your lease provider manages the budgeting and payment of your running costs throughout the term, removing the need to track and pay for each expense yourself.
Cons
-
Higher repayments than a non-maintained lease
Because running costs are built into your deductions, your regular payments will be higher than they would be under a non-maintained arrangement.
-
Estimated costs may not reflect your actual usage
Your budget is calculated upfront based on projections, so if your circumstances change, it may not accurately reflect your real expenses. This can be easily amended, though.
-
Less flexibility in choosing service providers
Depending on your lease provider, you may be required to use approved repairers and service providers rather than your preferred mechanic or insurer.
Is a fully maintained novated lease worth it?
Ultimately, whether a fully maintained lease is right for you depends on your individual preferences and circumstances. Here are some situations where it may or may not be best:
- If you prefer the simplicity of a single, predictable deduction per pay cycle rather than managing your motoring costs separately, fully maintained leases do the hard work for you.
- If you drive a high number of kilometres each year, you’d stand to save more by paying your fuel and maintenance costs partly or fully out of your pre-tax income.
- If you’re leasing an electric vehicle, you can have up to 100% of your car’s running costs deducted from your pre-tax salary, taking your tax savings even further.
- If you have strong preferences about where you service your vehicle or who insures it, you may have more limited flexibility in choosing your own providers with a fully maintained lease.
- If your driving habits change constantly, it may not be convenient to have to continually update your budget (though this is usually a relatively pain-free, easy process).
