A novated lease can have significant financial benefits for employees. Read on to find out what a novated lease is, how it works, and the benefits.
What is a novated lease?
Essentially an agreement between your employer, a finance company and yourself. Your employer will make the monthly lease payments to the finance company, and you can use the vehicle as part of a salary packaging arrangement.
How does it work?
Unlike a traditional company fleet, there are few restrictions when selecting your vehicle. You can choose one that suits your lifestyle including; the make and model, new or used, sedan, wagon, 4WD, etc., You purchase the vehicle and then enter into a finance agreement in your own name.
Once you've purchased the vehicle, you, your employer and the finance company all sign a novation agreement. Within that agreement, the lease, running costs of the vehicle and fringe benefits tax (FBT) are deducted from most of your pre-tax salary. Your income tax is then calculated on your reduced salary, which can increase your net disposable income.
Novated lease packages
There are two main ways to structure novated lease payments - fully maintained, and non-maintained. Some employers offer you a choice, while others may offer only one. If your employer doesn't currently offer novated leases, have a chat with your Stratton finance consultant - we can assist your employer with the set-up of a program with minimal fuss and no cost.
Fully maintained novated lease
Under this agreement, all operating costs for the vehicle are included as part of your salary package. Operating costs that can be packaged include:
- Lease rental (repayments)
- Fuel and oil
- Service and maintenance
- Comprehensive insurance
- Other types of insurance - e.g. tyre & rim, gap and more
- Accident management
- Operating costs and FBT reporting
With this package you don't have to worry about budgeting for the operating costs of your vehicle. All costs and applicable FBT are deducted from your salary package.
Non-maintained novated lease
Under this agreement, sometimes called a finance only novated lease, you are responsible for all vehicle maintenance and running costs which you’ll pay as they occur. Only the lease rental, and any applicable FBT, is deducted from your salary package.
Benefits of a novated lease
- It’s both cost and tax effective. Your salary packaged vehicle costs can be paid from your income. As most of this (if not all) will be using pre-tax dollars, you’ll enjoy a lower rate of tax on the benefit than if you were to pay for the running costs of the vehicle using after tax income. You save money.
- Freedom to select the vehicle of your choice. This is because a salary packaged vehicle is not part of a company fleet.
- The vehicle is yours to use 100% of the time and there are no restrictions on who can drive it.
- Your lease and your vehicle are transferable. If you change jobs, you can enter into another novation agreement with your new employer.
- You benefit from any equity built up in the vehicle during the term of the lease. Any profit realised on the sale of the vehicle at the end of the lease is tax-free.
- Lease repayments are fixed for the term of the lease.
- You can select flexible lease terms from 12 to 60 months (one to five years).
- You can select flexible lease residuals, bearing in mind the Australian Tax Office (ATO) minimum residual guidelines for leases and the financier's maximum residual guidelines.
- Under a novated lease, the financier applies an Input Tax Credit (ITC) to remove the GST from the amount financed. This means that your repayments will be lower as you finance a reduced, GST-exclusive amount.
How a novated lease operates day-to-day
Fully-maintained novated lease
Fully maintained novated leases are designed to make your life easier. Under this package, a pre-determined amount is deducted from your wages each pay cycle to cover the lease and operating costs of your vehicle, and any FBT payable.
The amount deducted for operating expenses is reviewed at regular intervals, and if your vehicle is costing more to operate than expected our team will be in contact to adjust your budgets accordingly.
Look out for these convenient day-to-day inclusions in your fully maintained novated lease:
- Fill up with a fuel card. Simply present your card at participating service stations to quickly and easily purchase fuel, with no out of pocket expenses.
- Call for help: 24-hour Roadside Assistance is available to help get you back on the road as quickly as possible.
- You won’t need to worry about the cost or quality of your vehicle's scheduled maintenance again as it’s paid for from the funds already deposited into your salary packaging account. This ensures you’ll receive negotiated discounts and that labour and parts costs are in line with manufacturer's recommendations.
- While it will be your responsibility to manage the registration and insurance, the amounts are set aside in your package, so you won’t be out of pocket.
These are just some of the features you can expect. For more detailed information please talk to your finance consultant.
Non-maintained novated lease
A pre-determined amount is deducted from your wages each pay cycle to cover the lease costs of your vehicle and any FBT payable, and you pay the service and maintenance costs as and when they occur.
You get the benefit of any tax savings made possible through salary packaging, while retaining control of your service, maintenance and other operating expenses.
How Stratton can help
Stratton Finance takes the hassle out of arranging a novated lease, and we save you money at the same time. Our dedicated finance consultants are experts at both non-maintained and fully maintained novated leases, including effective salary packaging strategies to reduce your income tax obligations. Our wide range of lenders ensures you get the best finance package available. Our car broking services can also help you find the best deal on your next vehicle. To get started, complete an instant online Novated Lease quote and find out how much you can save in less than 60 seconds, call us on 1300 131 050 or speak to your Finance Consultant.