novated leasing a car

With price of petrol hitting the $1.35 per litre, I starting looking at various options for reducing out running cost on a car. We currently drive a 4WD, and its fuel economy is not very friendly to our wallets. Its weight, constant all wheel drive, and lack of any aerodynamic in its design are the enemies of any good fuel economy. One of the options considered is novated leasing a car, in particular a smaller, more fuel  efficient car.

The guys at privatefleet has a good explanation on what a novated lease is. The two main benefits that I saw was

1. Financing of the vehicle is paid with pre-tax dollars.
2. The vehicle may be leased for 100% private use.

Why are these good points, bearing in mind that we are essentially borrowing money to buy a car, and all the running cost of the car is the same? Well, the above two points says that you are using the money for your own purposes before tax calculated for the tax office. The resulting effect is that your taxable income will be lower, in some cases, it may be lowered to the next tax bracket.

Before we leap into a novated lease agreement, the following questions need to be answered.

1. Do we really need another car?
   
2. What kind of car do we need?
   
3. How much do we need to borrow?

The bottom line is the we will be spending more money on a car as the money will be coming out of our own pocket, the main difference is that it is pre-tax dollars instead of post-tax dollars. If the car is not needed, would it the money have better spend else where.

In the coming months, these questions will hopefully be answered.