25 July 2023
The demand for Electric Vehicles is at an all time high, and novated car subscriptions provide a flexible and cost-effective option for those looking to embrace sustainable mobility without long term financial commitments. With an EV novated subscription, you can drive an electric vehicle of your choice while paying for the subscription using salary sacrifice. This arrangement allows you to save on GST and tax for both the vehicle’s cost and all running expenses, as well as reduce your taxable income.
An EV novated subscription is suitable for absolutely anyone who wants to drive an EV for lower cost. The shorter term plans available on subscription, usually 6-9 months are perfect for new employees, anyone who wants to try before they buy, or even just car enthusiasts who like the idea of getting a new EV every 6-12 months. If you want the luxury of driving an EV while saving money on tax and avoiding owning a depreciating asset, an EV subscription is the perfect option for you.
Novated subscriptions work slightly different to a novated lease. A subscription is generally a more flexible option of car ownership where you commit to a new EV for a 6-12 month period. You also have the option to renew and even swap the EV type at the end of each subscription plan. Subscriptions includes the cost of the vehicle, registration, insurance, roadside assistance and any servicing or maintenance. PLUS you enjoy a new car feeling over and over again.
With a Novated lease, this is a slightly more traditional car ownership option where you are financing the vehicle over a typically 5-7 year time period and have a balloon payment at the end to purchase the car. With novated leases, your running costs are separate from the finance amount including all servicing and maintenance. You also have the burden of depreciation of the vehicle over a long period of time.
Salary sacrificing a car on subscription involves an arrangement between an employee and their employer and the supplier of the vehicle. A portion of the employee’s pre-tax salary is redirected towards the subscription service and running costs of a car. This arrangement can offer certain tax advantages, as the sacrificed amount is not subject to income tax. Here’s how it generally works:
Salary packaging can have a significant impact on your taxable income, potentially resulting in reduced income tax payments. Here’s an example to illustrate how it works:
Let’s say you earn a pre-tax salary of $100,000 per year. Through a salary packaging arrangement, you can choose to receive $85,000 as regular wages and sacrifice the remaining $15,000 towards an electric car subscription as a benefit.
According to the Australian Tax Office (ATO), you only pay income tax on the reduced salary amount. This will effectively reducing your taxable income to $85,000 in the example mentioned. As a result, you will pay income tax based on the lower amount, potentially leading to tax savings.
Additionally, when you salary package an EV subscription, you can also save on Goods and Services Tax (GST). This is because your employer can claim a GST input tax credit on the subscription costs, reducing the overall GST liability.
To learn more about the difference between an EV Novated Subscription and an EV Novated Lease, you can read our blog Exploring a salary sacrificed EV Novated Subscription.