K R Consulting

Novated Lease

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 rental payments;
  • 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 pre-tax wages;
  • freedom to choose the vehicle they want;
  • 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 deduction.

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.