With a Fully Maintained Novated Lease, the lease and running costs of the motor vehicle and fringe benefits tax (FBT), if applicable, are deducted from the employee’s pre-tax salary. This means the PAYG is calculated on the reduced salary or wages.
The tax benefit of a novated lease arises from the concessional fringe benefits tax treatment on the car. Depending on the employee’s individual financial circumstances, salary packaging a motor vehicle under a novated lease can have the effect of increasing an employee’s net disposable income.
As the financier is the owner of the motor vehicle, they claim the GST on the purchase price, meaning that the
employee finances the GST-exclusive amount.
Novated leases only apply to motor vehicles. A Novated lease arrangement is typically an agreement between three parties, a finance company (Lessor), an employer (Payee) and an employee (Lessee) called a deed of Novation.
How does it work?
- The employee chooses the car and leases it from the finance company under a finance lease.
- The employee then sub-leases the car to you (the employer) under an Operating Lease.
Benefits to you, as an employer:
1. Potential to remove the vehicle fleet from your balance sheet.
2. Tax deduction for lease rentals.
3. If the employee leaves, the company is not left with an unwanted car.
4. Your single obligation each month is to make monthly rentals (costed into your employee’s remuneration).
5. Administration is relieved of cost burden relating to administration and maintenance costs along with the acquisition and disposal of car.
The ability to negotiate payment of vehicle running costs with your employees.
Benefits for employees
1. Use of the vehicle without having to budget for the repayments.
2. Option to buy the vehicle without a deposit or the hassle of being reimbursed from your employer.
3. Complete choice about what car you buy and where you buy it from.
4. Retain the car even if changing employment.
Novated lease terms range between 12 and 60 months