Novated Lease
Is your employer paying your car loan and other related costs?
Overview
Its agreement between employer, employee and a financier that your employer is paying for your car loan and other car related expenses. It can last upto 5 years.
Maintainence of Novated Lease
This lease means that all of your operating cost of car are included in your salary package. Such as:
- Lease Rent
- Car Expenses
- Roadside Assistance
- Registration
- Comprehensive insurance
- Service & Maintenance
Non-Maintainence of Novated Lease
This lease means that the lessee is responsible for all maintenance and other running costs of the vehicle.
Flexibility of a Novated Lease
There are a various benefits associated with novated leases, such as:
• Employer can lease the vehicle of their choice
• When an employer leaves the job, the responsibility for the lease goes back to the employee.
• Vehicle does not appear on the employer’s Balance sheet
Benefits of Novated Lease
Tax Benefits of Novated Lease
This lease is central to salary packaging arrangements between an employee and an employer. Under a salary packaging arrangement, an employee agrees to forego a portion of their salary or wages in return for benefits equal to that amount.
The lease and running costs of the motor vehicle, and fringe benefits tax (if applicable) are deducted from the employee’s pre-tax salary, and PAYG is calculated on the reduced salary/ wages.
The tax benefit of a novated lease arises from the concessional fringe benefits tax treatment on the car, with the lease and running costs being FBT exempt. Depending on the employee’s individual financial circumstances, salary packaging a vehicle under a novated lease can have the effect of increasing an employee’s net disposal income.
Other benefits of a Novated Lease
• The term of the novated lease ranges from 12 to 60 months.
• Financier is the owner of the vehicle, so they can claim the GST on the purchase price
• Employer is entitled to claim tax credit for the GST component of the lease payments and other costs.
• If the employer passes back to the employee he is paying the lease and net costs of GST.