Novated Lease

The inclusion of a motor vehicle as part of an employee's remuneration package has always been viewed as an attractive benefit.

A Novated Lease works as follows:The employee decides what type of vehicle they want, and then enters into a finance lease with a finance company. The employee, employer and the finance company sign a 'Novation Agreement', whereby the employer agrees to take on the obligations of the employee under the lease. Under this arrangement, the employer makes the monthly lease payments on behalf of the employee. Should the employee leave his or her employment for any reason, the 'Novation Agreement' ceases and the obligations assumed by the employer revert back to the employee.

A Novated Lease provides flexibility for everyone. For employees it means greater choice in the vehicle they drive. As the finance lease is in their name, they have effective control of the vehicle, and can realise any equity built up in the vehicle over the duration of the lease. The lease is portable, so should an employee move to another job, they take the vehicle and lease with them. They then enter another 'Novation Agreement' with their new employer and the finance company, and maintain the benefits of their Novated Lease.

A Novated Lease can also be tax effective, as all vehicle running costs are paid from the employees pre-tax income.

A Novated Lease ensures that the motor vehicle is deemed to be 'held' by the employer for FBT purposes, while the vehicle is perceived to be 'owned' by the employee. Lease payments do not represent income to the employee, nor is the employee entitled to claim them as a tax deduction. The employer will be entitled to a tax deduction for the running costs (lease payments, insurance, registration, fuel and service and maintenance) as part of the employees remuneration package.

At contract end, if the employee makes a profit on sale (the market value of the vehicle exceeds the residual value on the contract), no tax will be payable on that profit, where the benefit gained is the result of a sale at arms length.

A Novated Lease can be both cost and tax-effective, as the employee gains the benefits of the lease payments, running costs and Fringe Benefits Tax being paid from pre-tax income.

Advanced in house computer systems at your preferred dealer means all paper work can be done on the spot, providing further convenience and saving you time.

Arranging a Novated Lease is easy. Once you have decided on the vehicle of your choice, simply speak with the Business Manager at your chosen car dealership. He or She can advise you on the full range of options and tailor the finance package to suit your needs.

For employers, a Novated Lease simplifies the provision of a company vehicle as effectively, the only commitment the employer has is the payment of lease rentals and other running costs. Upon termination of employment, the employer has no liability for ongoing lease payments or the residual on the lease. Similarly, should an employee leave, the employer is not left with unwanted vehicles which must then be sold or re-deployed within the organisation.

Vehicle administration is also greatly reduced, freeing staff to concentrate on other responsibilities. A Novated Lease is also 'off balance sheet' and therefore the lease liability is not recorded in the company accounts. By offering a Novated Lease, employers can provide a tangible benefit to attract, motivate and retain employees.

Motor vehicles remain an attractive component of any remuneration package because they are concessionally taxed for Fringe Benefits Tax purposes.