Salary packaging a car through a novated lease is very popular with doctors in the public healthcare system. Whether this is a good way to buy a car, compared to some other options depends on a number of factors. Let’s have a look at 3 things you should consider.
Amount of work-related or business-related use of the car
Some doctors only use their car for personal travel, which includes driving to and from work (from home). This type of travel does not qualify as work-related use. If you have no or little work-related car mileage, then packaging might be a good option, as you get some tax benefits by default.
The interest rate on the novated lease package is typically quite high compared to some other financing options. In a recent example for a client I noticed that the interest rate on the lease was 9.1% versus 4% offered by the dealer. If you shop around, you will surely find a better deal in terms of the interest than what is offered under a novated lease. The other question you should ask yourself is whether you really want to borrow for a depreciating asset!
Packaging a car is very convenient, as you can typically include costs such as registration, insurance, servicing in the packaging cost. You also get a fuel card. There is a regular pre-tax and post-tax amount
Final considerations – novated leases for doctors
The biggest trap with novated leases for doctors is that it is tempting to replace your car every 3-4 years, which is obviously not a great investment, as it is still a depreciating asset. Other than the considerations above, you should also be mindful of the Luxury Car Tax limit. Luxury Car Tax (LCT) is included in the total cost of the vehicle and therefore influences your monthly payment under a Novated Lease. Additionally, the Luxury Car Tax Limit determines the maximum Input Tax Credit claimable by the finance company when your vehicle is purchased. This means that if you salary package a vehicle that costs more the Luxury Car Tax Limit, you will not receive a credit for all of the GST included in the vehicle’s price.