The Aussie Chief says "the process of salary packaging is a relatively simple process. However, it's important for both parties to do their homework before entering into a Novated Lease agreement. Understanding the different aspects of a Novated Lease and the options available is a good place to start.

One of the best-known aspects of salary packaging is a Novated Lease, which is a three-way agreement between an employee, employer and finance provider. The deal enables employees to take out a standard finance lease on a car of their choice and arrange for the lease payments to be transferred to their employer through a full novation agreement. The employer deducts the lease payments, running expenses and fringe benefits tax (fbt) from the employees gross salary to pay for the car in pre-tax dollars. This process, also commonly known as salary sacrificing, can represent large savings for an employee.

During the term of the Novated Lease the employer is responsible for the calculation and payment of FBT. FBT for a novated lease is calculated on a sliding basis depending on the value of the vehicle and distance travelled for the year or business usage for the car. However, if an employee leaves the company before the novated lease expires, the novation agreement becomes null and void. The employer's obligation to make lease payments ceases and he responsibility reverts back to the individual.

Structured correctly, a Novated Lease arrangement can make for a win-win situation for both employees and employers. However, before jumping in, The Aussie Chief recommends being aware of the pitfalls and the commitment that car ownership inevitably brings.

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