Novated Lease (Salary Packaging)
Novated Leasing is a method of salary packaging a
car, under which an employee leases a car and the
employer agrees to take on the employee's obligations under the
lease, paying the monthly lease rentals from the employee's pre-tax
income.
This page relates to a Finance Only Novated
Lease or Non-maintained Novated
Lease - for information regarding Novated Leasing and
Salary Packaging including both the vehicle and it's operating
expenses, please see Fully Maintained Novated
Lease.
Novated Lease is the most common form of salary packaging a
car.
How does a Novated Lease work?
A Novated Lease is a three way agreement between an employer,
employee and finance company whereby the employee enters into
a Car Lease (Finance
Lease) with the financier and the employer agrees to take
on the employee's obligations under the lease.
Under this arrangement, the employer pays the monthly lease
rentals on behalf of the employee, and provides the vehicle for the
employee to use as part of their salary packaging arrangement.
If employment ceases for any reason, or the lease agreement is
finalised, the Novation ceases and the obligations assumed by the
employer revert back to the employee.
Benefits of a Novated Lease
For Employees:
- Choice - you can choose the car that best
suits your needs
- Control - you control the car, including care and
maintenance
- Portability - you can take the vehicle and lease with
you if you change jobs
- Tax effective - repayments are made out of pre-tax income, so
you may require a smaller portion of your income to run the
vehicle
- You retain any equity built up in the vehicle, not your
employer
- All the other regular benefits of a Car Lease (Finance Lease)
For Employers:
- No residual risk
- No excess vehicles if an employee leaves
- Employer can provide a more attractive remuneration package,
and therefore attract the employees they want
- Reduced administration time and costs (compared to company
cars)
- Reduced on-costs such as Payroll Tax and WorkCover
premiums
- Stratton can arrange all aspects of offering Novated
Leases to your employees, saving you time and money
Who does a Novated Lease suit?
A Novated Lease will suit any employee who wants to include
a motor vehicle as part of their salary package, so long as
their employer offers salary packaging as an option for
employees.
Tax implications of a Novated Lease
Under a Novated Lease, the finance company and employer can
claim an Input Tax Credit (ICT) for the GST included in the
purchase price of the vehicle and the monthly lease payments. The
benefit of these Input Tax Credits is passed on the employee,
essentially making a Novated Lease GST-free (subject to a few
limits).
At the end of the lease - or in the event of early termination -
GST is charged on the residual value of the lease, and as the
Novation reverts back to the employee, the employee is responsible
for paying the GST on the residual.
Fringe Benefits Tax (FBT) is also payable on the benefit
provided through the Fully Maintained Novated Lease, and this
expense is normally passed on to the employee. The amount of FBT
depends on the kilometres travelled each year - the higher the
kilometres, the lower the FBT - although this FBT can be offset
through employee contributions to the running costs of the vehicle
(the Employee Contribution Method (ECM).
Other options
If you are considering a Novated Lease you may also want to
consider a Fully Mainainted Novated
Lease, Hire
Purchase (HP), Car
Loan or Personal Loan,
depending on your circumstances.
To find out what is best for you, try our easy "Which Finance Is Right For You?"
online tool.
Want to know more?
You can read a detailed explanation of Novated Leasing including
how it works, the benefits, traps and tax implications in our
article Novated Leasing &
Salary Packaging - A Detailed Guide.
For Employees:
If you are an employee and have any questions or would like to
know more about a Fully Maintained Novated Lease, please send us a
quick online finance
enquiry or call us on
1300 STRATTON (1300 787 288) and
one of our finance consultants will assist you. You can also get an
instant online quote or approval for a Novated Lease.
You may also wish to consider other individual car finance options.
For Employers:
Stratton Finance can assist you with the establishment and
operation of a Novated Leasing program for your employees at no
cost, while also making the process simple and hassle-free.
You may also wish to consider other business car finance & business car
loan options.