Novated leases can provide benefits to both the employer and employee. A novated lease is a three way agreement which involves a vehicle being leased to an employee from a lease company, however you as an employer take on the employee’s obligations under the contract. In this situation the lease payment is made by the employer on behalf of the employee, this is then later deducted out of the employee’s pre-tax income. Another common term for this is salary packaging a vehicle.
If your employee is no longer a part of your business or the novated lease comes to an end, the vehicle is still retained by the employee. Yet all your previous obligations under the lease agreement are reverted back to the employee.
As a business owner a novated lease will help you to receive benefits such as:
• (Possibly) a cost effective substitute for operating a group of company vehicles.
• The “off balance sheet” excluding company vehicles.
• Increase in employees’ salaries without or with little cost to your business.
• Your business will not assume any risk for the vehicle.
Employees will also benefit from novated leases in that:
• (Probable) significant income tax savings.
• Access to volume discounts.
• Profit from the end of lease.
• Contrary to a company car arrangement the employee will have much more flexibility when it comes to his/her choice in car.
• GST savings on what would usually accumulate as vehicle expenses.
• The vehicle stays with the employee and can be easily transferred to a new employer
There are two main types of novated leases, fully maintained and non-maintained.
Fully Maintained Novated Lease
Under a fully maintained novated lease the salary package includes all of the operating costs included in the arrangement. This may incorporate things such as fuel, oil, lease rental, servicing, maintenance, tyres, insurance, registration and roadside assistance.
With these particular arrangements you can finance 100 per cent of the vehicle under flexible terms of one to five years with a fixed residual. The lease provider sets a residual which is calculated using the ATO’s guidelines on depreciation.
You are able to choose between a fully maintained or partly maintained option and there are arrangements for flexible repayments. For instance, if the employee’s usage or running costs change the repayments can be adjusted accordingly. Fuel cards are also offered.
Non-Maintained Novated Lease
Non-maintained leases make the lessee responsible for all of the costs of operating and maintaining the vehicle. In this scenario the employee has full use of the vehicle for a specified period of time in return for monthly repayments.
There are several values which need to be taken into account when making this form of arrangement:
• Interest
• The Finance Term
• Amount Financed
• Residual Value
Under a Non-maintained lease there are no finance payout penalties. This is a tax effective means to rent a vehicle and it can then be used completely for private use. You will also find a substantial amount of savings on GST.
For any more information on the benefits of novated leases or how to set up a novated lease, contact our experienced team at The Quinn Group and we can assist you in all your leasing enquiries. Click here to submit an online enquiry. Alternatively contact us on 1300 QUINNS (1300 784667) or on +61 2 9223 9166 to arrange an appointment.
