Novated Lease

This month we focus on the Novated lease and how savvy employers and employees are using it as a tool to negotiate a salary package, with winners on both sides.

Novated leasing is growing in popularity and in many cases is the only choice made available to employees wishing to have a car as part of their employment package. But be aware that this is only available at the employer’s discretion.

What is a Novated lease?
A Novated lease is salary sacrificing to purchase a car for private use only. Under the terms, an employer agrees to make the car repayments out of a worker’s pre-tax salary.

What taxes are imposed?
Fringe benefits tax (FBT) is payable but the good thing is the FBT is less than the income tax that would have been paid. (Minimising your tax)

Is a Novated lease for everyone?
The short answer is NO. “If you’re not doing many kilometres and you don’t have a reasonability high income, It’s probably not going to work for you, because the income tax you’d save would be outweighed by FBT . However higher earners and high-mileage drives can do you very well.

What happens at the end of the lease term?
A Novated lease always has a balloon payment at the end, which is tightly administered by the Australian Tax office. The ATO sets certain sums as minimums as borrowers need to avoid a bill greater than the car’s worth at the end of the lease.

Why is it good for the employee?
Usually if you are given a car as part of your employment package you have no choice of what you drive. It may have done many kilometres and previously been mistreated by former grubby employees.  With a Novated lease the employee has a choice of which vehicle they drive and to top it off they get equity in their motor vehicle investment.

What if the employee leaves their job?
This is the best part for the employer, its portable so if the employee leaves the job they take the car and the debt with them. No more having a car sitting around costing money with no one to drive it.