Edition 2, 2007 - Novated Leases - A Real Bonus For Employees
Finance Focus #2 2007
Novated Leases -
Novated Leases - A real bonus for employees
A Novated Lease - which forms a part of a salary packaging arrangement - is a three way agreement between an employee, employer and financier, under which the employer agrees to pay vehicle lease rentals on behalf of the employee from their pre-tax income.
This creates a tax benefit for the employee, and employees who are able to access a Novated Lease may be in for a real bonus.
How much? It's not easy to give a general answer because Novated Leases are always calculated on an individual basis - the savings depend on variables that include the vehicle price, salary level and the kilometres travelled each year.
While salary packaging a vehicle attracts Fringe Benefits Tax (FBT), employees can benefit from requiring a smaller portion of their income to cover lease payments than if they were to make those payment using after tax income.
Specifics aside, employees can enjoy a number of benefits from salary packaging a motor vehicle via a Novated Lease. These are:
Choose your lease conditions wisely
You have the ability to structure your Novated Lease to suit your driving habits and budget. Depending on the kilometres you drive each year, and how long you typically keep your car, you can select the contract term and residual on the lease (within guidelines) to best suit your requirements. In this way you can tailor the lease payments to suit your budget. Think about what you may want to do with the car at the end of the term of the Novated Lease. If you plan to keep the car (for your spouse or children, for example) then you may want to keep the residual to the minimum possible, so that the final residual payment is low and you have less to pay/refinance in order to retain the vehicle.
If you plan to trade the car in at the end of the lease, its important to make sure the residual value matches or is less than the cars future value so you ensure you won't be out of pocket. Financiers set maximum residual value guidelines with the intention of ensuring the value you select is reasonable in light of the type of car you are buying.
Be aware of the Luxury Car Tax
Luxury Car Tax applies to most passenger vehicles priced in excess of $57,009.00, and this has particular implications for Novated Leases. In general terms, the portion of the vehicle's value that is above the Luxury Car Tax Limit cannot be deducted for tax purposes, and this can lead to situations where the employer may pass this cost on to the employee in the form of further salary sacrifice. Novated Leases where Luxury Car Tax applies are a bit more complicated but it can still be worthwhile salary packaging a luxury car - your Stratton finance consultant can assist you in this situation.
Employees who want to salary package a vehicle via a Novated Lease can protect themselves in the event of unemployment and redundancy. If this were to occur, you would become responsible for the lease payments on your car. With Leasesure you can choose to have the insurer make up to 3 months lease rentals on your behalf, or you can hand the car back to the financier and if there is a shortfall between the sale price achieved for the vehicle and the lease payout amount, Leasesure will cover this shortfall for up to $15,000 (some conditions apply, ask us for a Product Disclosure Statement for more information). Leasesure provides security and peace of mind.
Explore every detail
As people's salary packages, car preferences and driving habits all vary, it's important to ensure that you choose the right structure for you situation. Including a car as part of a salary package may not necessarily suit everyone, and there are other finance options available. Stratton Finance can assist you with expert information and tailored solutions to ensure you explore all your options, and maximise the benefits that can be available from salary packaging a car.
Novated Leasing from an employer's perspective
Novated Leasing is simple for employers to implement and can provide tangible benefits to employees, while also reducing employment costs for the employer. Stratton Finance can assist employers to implement a policy of offering Novated Leases to their employees - contact your Stratton finance consultant for further information.
I'd like more information
If you'd like more information about novated leasing and salary packaging or a personalised quote based your unique situation, you can visit our website or contact your Stratton finance consultant directly.
Stratton rewards you for your referrals
Stratton Finance is proud to launch our new referral and loyalty program, Stratton Rewards, where you can earn points to redeem from over 1,000 rewards.
For more information or to join now and earn 500 bonus points (limited time only), click here.
GENERAL ADVICE WARNING - We must inform you that the information in this e-mail is general advice only and is not specifically based on your own objectives, financial situation or needs. Before you act on this information, you should read any relevent Product Disclosure Statements and consult with a registered tax agent to ensure that this advice is suitable for you.
Stratton Finance Pty Ltd
T: 1300 STRATTON
Stratton Finance - your personal finance broker
© 2007 Stratton Finance Pty Ltd