Novated Leases are increasingly popular offering benefits to employees. So, what are Novated Leases and how do they work?

What Is A Novated Lease?

A Novated Lease is a three way agreement between you, your employer and a finance provider.

When you enter into a Novated Lease you enter into the Agreement in your name. You also enter into what is known as a novation agreement that transfers the obligations you have under your lease to your employer.

Your employer will then take on the responsibility to pay the lease payments.

By the employer making payments this will mean tax savings for you, as your taxable income will be lower (as the payments are deducted from your pre tax salary).

If you leave that employer, you will then take responsibility for these costs yourself.

Employer Benefits of a Novated Lease 

  • No Cost to the Employer – There are generally no costs if staff choose a Novated Lease or salary packaging option.
  • Employee Goodwill – Provides employees greater flexibility in their choice of vehicles.  Salary packaging can used as a great tool to recruit and retain employees by offering an attractive workplace benefit.
  • Off Balance Sheet – This means that from an accounting perspective the usual requirement for ‘on’ balance sheet reporting is not in place.
  • Tax Deductibility –  With a Novated Lease monthly payment obligations for the leased vehicles are transferred to the employer, which in most cases means a direct expense deduction can be made on each lease instalment paid.
  • No Unwanted Vehicles – When an employee leaves the company, decides to no longer salary package or when the lease is at end, the salary packaged vehicle reverts entirely to the employee.

 

Employee Benefits of a Novated Lease

Novated leases offer employees:

  • tax savings as the lease payments are taken out of your pre-tax salary;
  • freedom to choose the vehicle;
  • the use of the vehicle for both work and private purposes; and
  • the ability to be able to own the vehicle outright at the end of the lease term.If as an employee your leave your employment before completing the lease agreement, you have the option to novate the vehicle to a new employer (if the new employer agrees to take over the novated lease), or you can make the lease payments.

 

Novated Leases and Fringe Benefits Tax (FBT)

FBT is a Federal Government tax imposed on certain fringe benefits provided to employees by their employer and is paid by the employer. This includes Novated Leases. The FBT liability is generally charged to the employee by the employer as a salary deduction.  

The majority of employees will benefit from novated leases as lease payments during the Novation Period are taken out of their pre-tax salary.

However we recommend that you should check with your Accountant first to make sure that a Novated Lease is suitable for your requirements. And also check with your Employer as well.

If you are looking for a Novated Lease make sure you contact us to discuss.