If you’re a medium to large sized company, a Novated Lease is a good option to provide benefits to your employees without having to spend precious business dollars to do so. A novated lease can form the basis of any salary packaging your company provides to employees and is a great way to provide a company car to an employee without having to pay a lump sum.
Novated Lease Explained
The basic premise behind this type of business car lease is that the employer, employee and lender enter into a three-way agreement where the lender and employer agree to take the employee’s obligations on.
By doing this, the employer agrees to pay the lease rental amount on behalf of the employee (by salary sacrifice – taking the payment out of the employee’s salary prior to income tax being deducted) and provides the car to the employee as part of their salary packaging arrangements.
The employee is able to use the car for both business and personal use, and the employer doesn’t have to use company funds to pay for a company vehicle.
Novated Lease Ends
Once the lease agreement has been completed or the employee leaves their place of employment, the obligations of the lease become the sole responsibility of the employee.
The employee can either choose to continue paying the lease of their own accord, or they can end the lease and pay out whatever money is owed to the lender.
There are many benefits for an employee accessing a car via a Novated Lease. These include:
- They can choose the type of car (as long as it meets the lenders requirements)
- They maintain the the car
- They can take the lease with them if they leave their job
- Cheaper instalment amounts as repayments are made pre-tax income
- Any equity accumulated belongs to the employee
There are many benefits for employers using a Novated Lease as part of their salary packaging. These include:
- Residual risk is reduced
- If employee leaves, they take the car and lease with them, no excess to pay on company’s part
- Employer’s can offer more competitive and attractive remuneration packages
- Less administration time and costs involved (compared with company cars)
- On-costs are reduced, such as Payroll Tax and WorkCover premiums
As the employer, you need to be aware of the following tax implications associated with a Novated Lease:
- You can claim Input Tax Credit (ITC) for the GST amount in the purchase price and monthly lease payments. This benefit is passed onto the employee too, making the lease GST free.
- If the lease finishes or is terminated early, GST is charged based on the residual value. The employee is responsible for paying this, as the Novation reverts to them. Less risk to you.
- Fringe Benefits Tax (FBT) is payable on the benefit, and this is normally paid by the employee. FBT is calculated on the kilometres travelled each year.
Always seek the assistance of your accountant or tax professional for full details and obligations.
At Australian Credit and Finance, we have access to over 13 lenders who can provide Novated Lease options, so we will work with you to find the right price and deal that best suits your needs. Contact our experienced team on 1300 735 557 today.