A Novated Lease is a 3-way arrangement between the employee, the employer and the financier where the obligations under the finance lease are transferred from the employee to the employer through a Deed of Novation and the employer assumes responsibility for making the lease payments to the financier.
The Deed of Novation remains in force until the end of the lease term, or until the employee ceases employment.
Fully Maintained Novated Lease
A Fully Maintained Novated Lease is an arrangement where all of the operating costs of the motor vehicle are included as part of your salary package. Operating costs that can be packaged include:
• Lease Rental
• Fuel & Oil
• Servicing & Maintenance
• Comprehensive insurance
• Roadside Assistance
• Car wash
Non-Maintained Novated Lease
Under a Non-Maintained Novated Lease, the lessee is responsible for all maintenance and other running costs of the motor vehicle.
Flexibility of a Novated Lease
There are a number of benefits associated with novated leases, including:
• Employer can lease the motor vehicle of their choice
• Motor vehicle can be leased where the private use of the vehicle is 100%
• When an employee ceases employment, the responsibility for the lease reverts back to the employee.
• Motor vehicle does not appear on the employer’s Balance sheet
Tax Benefits of a Novated Lease
The concept of novated leasing 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.
For a novated lease, 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 or 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 motor vehicle under a novated lease can have the effect of increasing an employee’s net disposal income.
Other benefits of a Novated Lease
• Repayments are fixed over the term of the loan
• The term of the novated lease ranges from 12 to 60 months.
• 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-inclusive amount (i.e. employee finances the GST-inclusive amount).
• Under a salary packaging arrangement, the employer is entitled to claim an input tax credit for the GST component of the lease payments and other running costs of the motor vehicle.
• If the employer passes back to the employee the input tax credits, the employee is effectively paying the novated lease and running costs net of GST.
We may be able to assist in specific circumstances by extending Private fleet benefits.