Novated Lease (Salary Packaging)

Novated Leases are a great way for companies to incentivise their employees, by allowing the employee to Salary Sacrifice the running costs and loan payments.

• What is it?
• Why a Commercial Hire Purchase?
• Who does it suit?
• The Tax Man
• More information

What is it?

A Novated Lease is an agreement between your employer and a Finance Company to enter into a Car Lease on your behalf. Your employer pays the fixed payments for the period of the loan out of your Salary before tax. You then have use of the car for the period of the lease.

If you leave your employer then the Car Lease responsibilities become yours, but will be paid after tax unless your next employer agrees to take on the Car Lease on your behalf

Why a Novated Lease

For Employees:

• Choice - you can choose the car that best suits your needs
• Control - you control the car, including care and maintenance
• Portability - you can take the vehicle and lease with you if you change jobs
• Tax effective – repayments are made out of pre-tax income, so you may require a smaller portion of your income to run the vehicle
• You retain any equity built up in the vehicle, not your employer

For Employers:

• No residual risk
• No excess vehicles if an employee leaves
• Employer can provide a more attractive remuneration package, and therefore attract the employees they want
• Reduced administration time and costs (compared to company cars)
• Reduced on-costs such as Payroll Tax and Workcover premiums

Who does it suit?

A Novated Lease will suit any employee who wants to include a motor vehicle as part of their salary package, so long as their employer offers salary packaging as an option for employees.

The Tax Man and your Novated Lease

GST is charged on the monthly lease rental and as long as the employer is registered for GST, they can claim this back as an Input Credit.

GST is also charged on the residual value on the lease, and as the Novation reverts back to the employee at the end of the lease, the employee is responsible for paying the GST on the residual.

Fringe Benefits Tax (FBT) is payable on the vehicle, and this expense is normally passed on to the employee. The amount of FBT depends on the kilometres travelled each year. The higher the kilometres, the lower the FBT.

Where the amount financed is below the Depreciation Limit ($57180), the employer claims the lease rental as a business expense. Above the Depreciation Limit, they claim the interest charges and depreciation up to the value of the Depreciation Limit ($57180).

Want to know more?

If you have any questions or would like to know more about a Novated Lease, please send us an online enquiry and we will contact you soon.

Alternatively you can use the Online Calculator to get an idea of what you can afford.