Great for employer and employee.
A novated lease is typically used to finance motor vehicles. It is a three way agreement between the employee, employer and a financier. Then by way of a Novation Agreement the lease is Novated to the employer, who then undertakes to meet the lease rentals whilst you are employed by that organisation. The employee is ultimately responsible for the vehicle so is able to take it to their next job.
Advantages and applications.
With a novated lease, the repayment of the loan is solely the responsibility of the employee. It offers salary sacrificing advantages reducing the employee’s overall tax. There is no up front lump sum or deposit required, though there will be a residual or balloon payment. Finance terms are typically three to five years.
Maximise your Salary – Managing FBT
Fringe Benefits Tax (FBT) is a tax payable by employers who provide non-cash benefits to employees. A Novated Lease is a non-cash benefit that attracts FBT. Some employers pass the cost of the FBT onto employees through salary sacrifice.
Employee Contribution Method (ECM)
Employee contributions can be used to reduce or remove the amount of FBT you pay. ECM allows you to pay some or all, of your vehicle costs from after tax dollars. Allowable vehicle costs include finance lease rental, fuel, maintenance, registration and insurance associated with your Novated Lease. Any such contribution payment can reduce the FBT Taxable Value of the vehicle and therefore the FBT liability payable. You may be able to reduce the FBT liability to zero by paying for allowable car costs up to the FBT Taxable Value of the car in after tax income.
Typical uses for a novated lease include but are not limited to:
• Cars and all types of luxury vehicles
• Utes and vans
• Computers and other IT equipment