Novated Lease

The Aussie Chief explains and provides information on this increasingly popular Car Financing option "Novated Lease", this includes

• What is a Novated Lease?
• How does a Novated Lease work?
• Benefits of a Novated Lease
• Taxation Implications of a Novated Lease
• Who does a Novated Lease suit?
• Novated Lease Terms and Balloons

What is a Novated Lease?

A Novated Lease is a three way agreement between the following:

• Employee
• Employer
• Finance provider

Employee

The employee lease's a motor vehicle directly from a finance provider and enters into a separate Novation agreement with the employer who agrees to cover the Novated Lease payments and in some cases, all other associated expenses during the period of employment. Liability for the motor vehicle continues to reside with the employee.

Employer

It's the employer's responsibility to ensure the monthly novated lease payments are paid to the finance provider out of the employee's gross salary.

Finance Providers

The Aussie Chief can recommend some of the best finance lenders and banks in Australia.

How does a Novated Lease work?

The employee selects the motor vehicle of their choice and, subject to credit approval, enters into a financial arrangement with a finance lender or bank.

The most common form of Novated Lease arrangement is a finance lease where the employee enters into a commitment to make monthly car lease payments and fixed residual at the end of the car lease. The residual is an amount that is set by the Australian Taxation Office (ATO).

Under the novated lease agreement, the employer assumes all the employee's rights and obligations under the car lease, including the responsibility for making the car lease rentals while the employee remains employed by the employer. The finance lease remains in the name of the employee who remains the registered owner throughout the Novated Lease and keeps effective control of the motor vehicle at all times.

If the employee leaves the company, the Novated Lease agreement expires immediately and the motor vehicle remains with the employee. In this situation, the employee generally takes over the payments or gets another employer to novated the finance lease again.

Novated Lease Benefits

A Novated Lease can appeal to both employee's and employer's and has many attractions. Some of the benefits include:

Benefits for employees

• Your motor vehicle costs are deducted from your pre tax salary.
• You can make a tax free profit when you sell your motor vehicle at the end of the Novated Lease.
• You get to choose the type of car and where you purchase it from.
• The Novated Lease agreement is totally portable if you change employment.
• You can receive a fleet discount on the purchase price of a new car from a fleet management company.
• You retain control of the motor vehicle.
• The motor vehicle can be used entirely for private use.
• Inclusion of the Peace of Mind plan allowing for the early return of the motor vehicle in the event of redundancy.
• A choice of Novated Lease terms from 12 to 60 months.
• Fixed payments for the term of the Novated Lease.

Benefits for employers

• The employer is able to provide a key benefit for it's employees by offering an attractive Novated Lease option.
• The employer is not left with an unwanted motor vehicle when the employee leaves.
• The employer can provide the employee with a motor vehicle without having to reflect it on its balance sheet.
• Reduced administrative costs relating to motor vehicle acquisition, disposal and management when using a fleet management company.
• Offers many employers, if registered for GST, the ability to claim an input tax credit on the GST paid on the car lease.

Taxation Implications of a Novated Lease

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).

The amount financed is the purchase price of the new vehicle minus GST.

GST is also charged on the residual value on the lease, and as the Novation reverts back to the employee at the end of the lease, the employee is responsible for paying the GST on the residual.

GST is charged on the monthly novated lease payment and as long as the employer is registered for GST, they can claim this back on their BAS.

Who does a Novated Lease suit?

A Novated Lease is available to all employees where the employer allows their staff the option of leasing a motor vehicle as part of their salary package.

Terms and Residuals of a Novated Lease

These are the standard terms and residuals.

• 5 year/ 30% balloon
• 4 year/ 40% balloon
• 3 year/ 50% balloon
• 2 year/ 55% balloon

Note: Residuals are set by the ATO.

Want to talk to a Finance Broker?

Just complete the friendly enquiry form and we will have an experienced Novated Lease consultant call you within a few hours.