What is a Novated Lease (Salary Packaging)?
A Novated Lease is becoming an increasingly popular method of motor vehicle financing over recent years. A Novated Lease combines features of more traditional forms of finance but delivers attractive benefits for both employees & employers.
How does a Novated Lease work?
Novated Leasing is a method of Salary Packaging a motor vehicle, under which an employee leases a motor vehicle & the employer agrees to take on the obligations of the employee under the lease, paying the monthly lease payments from the employee’s pre-tax income through “Salary Sacrificing”.
A Novated Lease is a three way agreement between the Financier, the Employee & the Employer, whereby the employee enters into a Motor Vehicle (Car) Lease with the financier & the employer agrees to take on the obligation under the Lease Agreement.
If the employment ceases for any reason, the employee is free to take the car with them, ending the Novation agreement between the current employee & employer. The employee can either make the monthly lease payments themselves or enter into a new Novated Lease with a new employer.
Benefits of a Novated Lease
- * Wider Choice- greater flexibility in your choice of car.
- * LeaseWorks can help with New Car Discounts via our new car buying service
- * Financing of the vehicle can be made with Pre-Tax dollars.
- * Portability- you can take the vehicle with you if you change jobs
- * Option to own the vehicle at the end
- * The car can be leased for 100% private use
- * Tax Effective- repayments are made out of Pre-Tax dollars, you may require a smaller part of your income to run the car
- * You retain the built up equity in the car, not the employer.
- * More than one vehicle can be leased if your employer agrees.
- * No Residual Risk
- * Easy & cost effective way to add value to employee remuneration package
- * No excess vehicles to dispose of if an employee leaves
- * Reduced admin costs associated with maintaining a company fleet
- * More attractive remuneration packages can be offered assisting with the employer attracting & retaining employees.
Tax Implications of a Novated Lease including GST and FBT
Under a Novated Lease Agreement, the finance company & your employer can claim Imput Tax Credits (ITC) for the GST included in the purchase price of the vehicle and the monthly lease payments. The benefit of these credits are passed onto the employee, making the Novated Lease GST-free.(Please consult your accountant before proceding to ensure you are entitled to this benefit)
Once the lease ends- or is terminated early for any reason , GST is charged on the Residual value or Balloon payment due at the end of the lease and as the Novation is reverted back to the employee, then the employee is responsible for the GST component.
Fringe Benefits Tax or FBT is also payable of the benefit provided through a Fully Maintained Novated Lease and this expense is usually passed onto the employee. The amount of FBT payable depends on the kilometres travelled per year- the higher the klms the lower the FBT. This however, can be ofset via employee contributions to the running costs called the Employee Contribution Method or ECM.
LeaseWorks can provide you with either a Fully Maintained Novated Lease or a Non-Maintained Novated Lease (Finance Lease) depending on your circumstances. You may also want to consider the following options for financing your new car including Hire Purchase, Chattel Mortgage, Car Loan or a Personal Lease.
Call us now on (1300) 39 09 79 or fill in our quick enquiry form & one of our consultants will call you.