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Look we know this is complex so let us break it down for you
If you are, full time or permanent part time and your employer supports salary packaging.
A Novated Lease is a three-way agreement between you, your employer, and stratton that bundles together all the finance and running costs of your car and allows you to pay with pre-tax dollars
The residual value (sometimes known as a balloon payment) is the amount of money remaining on your car at the end of the finance period. This amount is fixed and attracts GST. The residual value is calculated at the beginning of the lease and is payable at the end of the term.
The minimum residual value is set by the ATO and is usually expressed as a percentage of the amount financed.
Once your lease term expires you’ll need to pay the residual value. Or you may have the option to re-finance your car for another term.
If the market value of the vehicle is less than the residual value, the resultant shortfall will be your responsibility. Likewise, should the market value be more than the residual value, the surplus shall be yours to keep (tax free)!
You’re available to choose any car, any make, any model from anywhere within Australia. This can be:
If you leave your employer for any reason, your lease agreement ( the deed of novation) terminates immediately.
Don’t worry there are plenty of options we can help you with.
You can then choose to either:
Here’s the part most people find complicated.
When you take out a novated lease you reduce your taxable income, which reduces the amount of income tax you need to pay. To make up some of the shortfall, the Australian Taxation Office (ATO) levies another payment called Fringe Benefits Tax (FBT) on the non-salary portion of benefits your employer provides.
The Statutory Formula method is a common method of calculating Fringe Benefit Tax (FBT).
The FBT Taxable Value is calculated as follows:
FBT Taxable Value = FBT Capital Value x Statutory Percentage x (Number of days in the FBT year the vehicle is available for use / 365)
The FBT Rate is currently 20%
You can also pay for some of your novated lease expenses from post-tax income to reduce your FBT payments. This is known as the Employee Contribution Method (ECM). We’ll work with you to structure your novated lease payments using the right combination of pre-tax and post-tax dollars to reduce your FBT liability and maximise your income-tax savings.
To reduce your FBT liability all you have to do is pay a small portion of your novated lease payment from your post tax salary.
If this sounds complicated we can help you.
FBT is calculated based upon the FBT year, which runs from 1 April to 31 March.
We know life never works out as planned but your novated lease is flexible enough to keep up with your life. Your running cost budget can be altered at any time to reflect any change in circumstances. Any unspent money can be reimbursed through your payroll at any time if you feel you have an unnecessary surplus.
You can package as many vehicles as you’d like, as long as your employer agrees and you’re able to service the monthly payments. You can extend the benefits of novated leasing to more than one car.
Chat with us about your car leasing options if you’d like to package up two or more vehicles.
There are a few reasons that an employer would choose to offer a novated lease option for their employees.