Novated Lease – Valuable For Both Employer And The Employee

In Australia, novated lease is a three way contract linking an employer, employee and car Lease Company, under which the employee leases an automobile from the Lease Company, and employer, is in agreement, to undertake the employee’s commitments under the lease.

Usually, the employer makes the lease payments in support of the employee, and deducts them out of the employee’s pre-tax earnings. If the lease agreement ends, the employee keeps hold of the vehicle, however, the entire obligations assumed by the employer under the novation agreement goes back to the employee.

Vehicles salary packaged in the course of a novated lease magnetize Fringe Benefits Tax (FBT) in Australia. Though, FBT is treated as concession ally for vehicles, as a result novated leasing can be a tax-effective technique for an employee to buy a vehicle, conditional on the kind of vehicle, kilometers traveled yearly, FBT method used and employee’s pay.

There are three main types of novated lease: a novated finance lease, where just the vehicle is leased, a fully maintained novated lease, where the vehicle and its operation costs are absorbed into the lease, and a fully maintained novated operating lease, where the vehicle and its operation expenses are absorbed into the lease, and the outstanding value risk is assumed by the lessor.

Fully maintained novated leases and fully maintained novated operating leases are usually administered via a third-party lease management company, and the advantage of their supposed ease can often be linked via high administration charges and hidden costs allied with the lessor presuming the outstanding value risk (in the context of a fully maintained novated operating lease).

Advantages, in favor of, the employee:

Prospective for noteworthy income tax savings.
Savings on GST that would usually be acquired on, vehicle operating expenses.
Probable access to volume concessions if the employer has lots of vehicles under this plan.
Added flexibility in the selection of a car, weighed against, a company car deal.
Vehicle stays with the employee and can be passed on to a new company.

Advantages, in favor of, the employer:

A mean to offer an efficient raise in employees’ wages with no or negligible expenditure to the company.
Potentially a commercial option for working a fleet of company vehicles.
Judged against, company cars, the company does not presuppose any risk for the vehicles.
Measured up to company cars, employee vehicles are “off balance sheet”.