FAQ: What effect does Goods and Services Tax (GST) have on a Novated Lease?

What effect does Goods and Services Tax (GST) have on a Novated Lease?

In most cases, Goods and Services Tax (GST) applies to the purchase price of your salary packaged vehicle and to most related expenses.

When your vehicle is purchased, the finance company claims an Input Tax Credit (ITC) on the GST contained in the purchase price, up to the current Luxury Car Tax Limit (a maximum ITC of one eleventh of the Luxury Car Tax Limit). As the financier is able to claim this ITC, your lease payments are calculated on the purchase price minus the amount of this credit.

In addition, most employers are also able to claim Input Tax Credits on the GST applied to the lease payments and other vehicle-related expenses. Additional savings resulting from these credits claimed by your employer may also apply to your Novated Lease arrangements.

Finally, at the end of the lease - or in the event of early termination - GST is charged on the residual value of the lease, which you are responsible for paying.

To see how GST affects a Novated Lease in practice, click here to get an instant online salary packaging quote.