Novated Lease

Fully maintained or finance only, access fleet discount

Novated Lease

A Novated Lease is a three way agreement between the lease finance provider (the “Lessor”), an employee (the “Lessee”) and an employer. The finance product is a finance lease or a fully maintained finance lease with a Deed of Novation.

How does a Novated Lease work?

The employee enters into a Car Lease (Finance Lease) with the leasing company/financier and the employer agrees to take on the employee’s obligations under the lease via the Novation Deed.
Under this arrangement, the employer pays the monthly lease rentals on behalf of the employee (by way of salary sacrifice), 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.

Can I use a Novated Lease for something other than a new car?

Yes, a Novated Lease can be used for financing a used car. A sale and lease-back arrangement even means you can take a Novated Lease on the car you own now.

Tax implications of a Novated Lease

Under a Novated Lease, the finance company and employer can claim an Input Tax Credit for the GST included in the purchase price of the vehicle and the monthly lease payments (as long as the employer is registered for GST). The benefit of these Input Tax Credits is passed on to 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. Where the amount financed is below the Depreciation Limit ($57,180), the employer claims the Novated Lease payment as a business expense. Above the Depreciation Limit, they claim the interest charges and depreciation up to the value of the Depreciation Limit ($57,180).

What are the benefits of a Novated Lease?

For Employees:

  • Choice – you can choose the car and term (1 to 5 years) 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 (depending on employer acceptance)
  • Tax effective – repayments are made out of pre-tax income, so you may require a smaller portion of your income to run the vehicle
  • GST is not financed – the GST on the purchase price of the vehicle is claimed back by the finance provider on your behalf. This lowers the amount financed to the purchase price minus GST
  • You retain any equity built up in the vehicle, not your employer. If you pay out the residual at the end of the Novated lease and keep the car you may benefit from the equity built up over the lease
  • The Interest Rate and lease payments are fixed for the term of the Novated Lease agreement
  • Lower interest rates due to the lease being secured against the vehicle
  • Multiple cars and cars used for 100% personal use can be financed through a Novated Lease.
  • Maintenance costs including fuel, oil, insurance, registration, servicing and tyres can be packaged within your novated lease, benefits include less administration, fuel discounts and tax advantages
  • Reduce cost, we can arrange a fleet discount for your new Novated Lease vehicle

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 – without increasing the employees pay.
  • Reduced administration time and costs (compared to company cars)
    We can arrange all aspects of offering Novated Leases to your employees, saving you time and money
  • Reduced on-costs such as Payroll Tax and WorkCover premiums

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;
  • normally claim a tax deduction for their car expenses and don’t like the hassle of the extra paperwork;
  • are looking for a tax effective method of financing their car.
 Please contact us today to discuss your novated lease options. 
 

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