What is a Novated Lease?
Essentially, it’s a three-way agreement between you, your employer and a finance company that bundles together all the costs of your vehicle and allows you to pay them using pre-tax dollars.
- Save on your tax
- Choose the vehicle that's right for you
- Enjoy a higher disposable income
What are the perks of novated leasing?
For you, the main one is financial. Because your lease payments can be deducted from your income, you'll be able to save big bucks on your tax return at the end of the year. You'll also have full control over which vehicle you choose and if you decide to leave your job further down the track, you'll be able to take it with you.
Common questions about novated leasing
How does a Novated Lease work?
If your employer offers Novated Leasing as a salary packaging option, you can select a vehicle that suits your lifestyle. You can choose the make and model, new or used, sedan, wagon, 4WD, etc., without any of the restrictions usually found with a traditional company fleet. 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. Your employer agrees to take on your obligations (repayments) to the finance company, and is responsible for all of the agreed vehicle expenses which are deducted from your remuneration as part of your salary packaging arrangement.
You agree to "salary sacrifice" a portion of your earnings in return for the benefit of a car equal to that amount. With a Novated Lease, the lease, running costs of the vehicle and Fringe Benefits Tax (FBT) are deducted from your pre-tax earnings, and PAYG income tax is calculated on your reduced salary. This can effectively increase your net disposable income as you pay less tax.
What are the benefits of a Novated Lease?
Novated Leasing offers a range of benefits for both employees and employers.
Novated Leasing offers many benefits for employees:
- A Novated Lease is both cost and tax effective. Your salary packaged vehicle costs are paid from your pre-tax income. Paying with pre-tax dollars means that you 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 the company fleet.
- The vehicle is yours to use 100% of the time. The vehicle is yours and there are no restrictions on who can drive it.
- Your lease and your vehicle are portable. If you change jobs, you can take them both with you and enter into another Novation Agreement with your new employer and the financier.
- 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.
- Under a salary packaging arrangement all finance and operating costs for the vehicle are known as a "related benefit" and are GST and income tax-exempt.
FOR THE EMPLOYER:
Novated Leasing also offers a number of benefits for employers:
- The ability to provide more flexible remuneration to employees at little-or-no cost to your business.
- Significant savings of time and money compared to the administration of a company fleet.
- Elimination of the residual-value risk of a company fleet.
- The employer is not responsible for the vehicle if an employee leaves, and is not left with vehicles surplus to requirements.
- Vehicles provided under a Novated Lease are "off balance sheet" - neither an asset nor a liability.
- Reduced employee on-costs, such as Payroll Tax and WorkCover premiums.
Who is eligible for a Novated Lease?
If you are working full time or permanent part time and your employer supports salary packaging - you're eligible.
What can be included in a Novated Lease?
- Vehicle finance
- Comprehensive insurance (or you can arrange your own)
- Maintenance such as servicing, tyres, battery replacement and repairs
- Roadside assistance
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