A novated lease has become an increasingly popular form of vehicle financing over recent years. A novated lease combines many features of more traditional forms of car finance to deliver some attractive benefits for both employers and employees.
A novated lease is a three-way agreement between your employer, yourself (the employee) and the financier, where the obligation to meet the repayments under the finance lease is with the employer. With a novated car lease agreement, you own the vehicle and have the right to take it with you should you change jobs and, structured correctly, there may be tax advantages with your remuneration package. As with other leasing structures, repayments with novated leases are flexible and calculated based on the term, interest rate, amount borrowed and the residual payment. Because the whole cost of the vehicle ownership is packaged into the employee’s salary, there are not only tax savings to take advantage of but there’s also the benefit of having a regular payment structure for all ongoing repairs and maintenance.
benefits for employee
Benefits of novated lease explained for the employee include:
Greater flexibility with the choice of a car (for the full benefits, the only condition is that the car must be under the current luxury car tax threshold)
Financing of the vehicle may be paid with pre-tax dollars which makes a huge difference especially for those on higher tax brackets.
Option to own the vehicle at the end of the term or pay out the current lease and start a new agreement
The vehicle may be leased for 100% private use with no need for logbooks
More than one vehicle may be leased with employer consent which can be useful for incorporating a spouse’s vehicle for example.
benefits for employer
Benefits of novated lease explained for the employer include:
An easy and cost-effective way to add value to an employee’s remuneration package which can greatly aid recruitment and retention
Time and costs associated with management and disposal of the vehicle are not the employer’s responsibility (no more company cars treated like hire cars!)
On termination of the employees employment, the responsibility of the vehicle is passed on to the employee greatly reducing the outstanding liability for the employer
Other issues that will need to be addressed before commencing with a novation agreement include (note that through partnership arrangements, Private Fleet are able to provide a complete solution to the following issues and can provide access to the best novated lease calculator Australia has seen!)
Salary Costing (comparing with real-life novated lease examples) – what will it mean to your bottom line?
FBT (fringe benefits tax) calculations. Currently, (2011/2012) these vary depending on the distance travelled each year although that is set to change and become one flat fee.
Fuel costs, maintenance and servicing costs calculation
Current vehicle disposal and what should be the novated lease residual to ensure no liability at the end of the term.
12 Steps to Novated Lease Success!
1Establish whether current employer offers salary packaging and novated leases or is agreeable to investigating the benefits of such a lease. If so, check to see whether they are locked into an exclusive agreement or not.
2Obtain advice on novated leasing and see examples. Ideally this should be obtained from multiple sources and companies such as:
your Australian accountant (who should have access to an FBT calculator)
your financier (please contact us for an introduction if needed)
a salary packaging company (again we can put you in touch)
3Ensure that accurate modelling of personal financial implications is explained and performed based on various scenarios (insist on seeing multiple novated lease examples and having a play yourself with a novated lease calculator).
4Decide on a vehicle (take advantage of resources on our website or feel free to give us a call) and roughly calculate its on-road cost.
5Reconfirm that approximate vehicle purchase price fits in with previous modelling (tip: use our novated lease calculator).
6Engage Private Fleet to source vehicle and negotiate the maximum fleet discount deal.
7Choose novated leasing financier if not already known. (we can help here by putting you in touch with a partner financier or novated car lease broker)
8Private Fleet will arrange for supplying dealer to issue ATO recognised tax invoice directly to chosen financier.
9Finance should be approved (if not, order will be cancelled and options re-evaluated as order is ‘subject to finance’).
10Deed of novation prepared and signed by relevant parties
11Vehicle delivered with full tank of fuel
12Payroll or HR department of employer calculates and sets up regular deductions for employee’s salary package and FBT.
Please enquire now and we’ll organise for one of our specialist partners to get in touch for a free, no obligation consultation.
Visit our novated leasing calculator, contact a finance consultant, read the official ATO Novated Leasing Ruling, or call 1300 303 181 for more information on how it works and whether such an arrangement will eb right for you.
Click here to save thousands off the purchase price of your new vehicle when novating a lease anywhere in Australia including Perth, Melbourne, Sydney and Brisbane.
Remember by engaging Private Fleet to do the legwork with your new car purchase, you not only save time and hassle, by saving thousands of dollars off the purchase price, and, by combining this with the novated lease benefits of salary packaging, you’ll be sitting in the driver’s seat in no time at all!