Novated Leasing is a popular, and often a financially attractive way employees can lease a car from their pre-tax income. This is known as salary sacrificing.
By paying the lease from pre-tax income it in effect also reduces your taxable income.
How does Novated Leasing work?
To access Novated Leasing the employer needs to offer salary sacrificing as part of their employment arrangements.
Then when the employee enters into a Novated Lease:
- The employer undertakes to make the monthly lease payments on behalf of the employee whilst employed with that business
- The lease payments are deducted from the employee’s pre-tax income
If at any point the employee leaves the business, the Novated Lease terminates. The responsibility for making the lease payments, reverts to the employee
Novated Lease – Employee Benefits
There are a number of benefits Novated Leasing offers to employees:
- You can choose a new or used vehicle whichever best suits you and your family’s needs
- Your salary packaged vehicle costs are paid from your pre-tax income
- The amount you finance does not include GST
- There are no restrictions on the use of your car (Employer owned vehicles are likely to have restrictions on use)
- You are responsible for care and maintenance of the vehicle
- If you leave the business, you can take the vehicle with you
- You benefit from any equity built up in the equity at the end of the lease
- You can select terms from 12 months to 60 months
- Lease payments are fixed for the term of the lease
Novated Leasing – Employer Benefits
Allowing employees to salary package motor vehicles also offers a number of benefits for employers:
- It can be more cost effective than providing company owned vehicles
- It eliminates Residual Risk associated with company fleets
- If the employee leaves, the obligation ceases
- It can help with employee retention (value added benefit) Make the business more appealing to potential employees
- It offers reduced costs compared to supplying and maintaining company cars
- The employee is responsible for maintenance, registration and servicing of the vehicle
- Reduced on-costs such as Workcover and Payroll Tax
Engage a Specialist – Avoid Expensive Mistakes!
If you are an employer or employee considering Novated Leasing it is important to engage a specialist.
Given the nature of the product, there is a lot more to consider than just the interest rate applied to the finance.
At The 500 Group we understand Novated Leasing.
If you would like to learn more, don’t hesitate to give me a call on 0433 210 353
