A novated lease is a three- way arrangement between an employer, their employee
and a vehicle financier, offering an alternative to the standard company car.
The employee leases a motor vehicle of their choice from the financier who then
novates the agreement to their
employer. It is now the employer's responsibility to ensure the monthly lease
payments are paid to the financier out of the employee's gross salary.
The car is now available for the employee's use. Other running costs can also
be deducted directly from the employee's gross salary by the employer, offering
significant benefits to both.
As well as being able to offer employees the extra incentive of a car in their
remuneration package, a novated lease also:
- takes away the burden of
managing a company car fleet;
- takes away the necessity of
recording the car as an asset or liability in the business;
- offers an income tax
deduction for all payments made under the agreement, including lease
- offers many employers, if
registered for GST, the ability to claim an input tax credit on the GST
paid on the lease, (exceptions apply) and
- takes the responsibility of
making lease payments away from the employer as soon as the employee
leaves their job.
Novated leases offer employees:
- tax savings through salary
sacrifice arrangements as the lease payments are taken out of their
- freedom to choose the vehicle
- the unconditional use of the
vehicle for both work and private purposes; and
- the option to own the vehicle
outright at the end of the lease term.
If an employee leaves their job before paying off the lease agreement, they have
the option to take the vehicle with them to their new employer (if the new employer
agrees to take over the novated lease), or they can arrange lease payments themselves.Novated Lease and Fringe Benefit Taxes (FBT)
FBT is a Federal Government tax imposed on certain fringe benefits provided to
employees by their employer and is paid by the employer. The amount of tax paid
is determined by the 'grossed-up' value of the benefit.
The FBT liability is generally charged to the employee by the employer as a salary
Is novated lease suitable for you?
The majority of employees that benefit from novated leases are those who have
a portion of their salary in a higher tax bracket as deductions for the novated
lease and associated costs are taken out of their pre-tax salary.
Others who can benefit from this kind of lease are those who use their car a
lot for traveling purposes, since FBT is calculated not only on the value of
the car, but also on the distance traveled each year. The greater the distance,
the lower your pre-tax salary and the less tax you'll pay.
The Car loan market is very competitive. If you have
any questions that we can help you with, please call at any time on 1300 79 63
69 or click on the Make an Obligation Free Enquiry link below and one of our
experienced consultants will be in touch with you within 24 hours.