What exactly is a Novated Lease?

A novated lease is a particular type of car lease that enables employees to drive a personal motor car in both a tax and cost-effective way as compared with more traditional types of car financing.

‘Novated’ describes a contract involving the actual employer, a employee and also the car financier where a particular employer agrees to fulfill the repayment schedules on the financial lease while an employee continues employment with their company.

As an exchange, the employee ’sacrifices’ a portion of  his or her salary to pay for the expense of the actual finance and operating costs.

What makes Novated Leases beneficial?

Within a novated lease agreement, employees can easily spend less in comparison to financing a car choosing more traditional means say for example through dealership financing, unsecured loans, mortgage offset, or purchasing a car outright.

Novated leases can also certainly be secured for second hand vehicles, or even a vehicle that an individual is currently driving.

A few of the advantages of Novated Leasing may include:

Advantages of a Novated Lease for an employee:

• Substantial salary tax savings.
• Cost savings on GST that are typically be sustained on car expenditures.
• Savings on GST on the price of the car.
• Having access to fleet discount pricing in the event the company has a large number of cars within this structure.
• A lot more overall flexibility in selection of a vehicle as compared to a ‘company car’ set up.

Advantages of a Novated Lease for the employer:

• A method to efficiently boost employees salaries without any, or nominal expense to the company.
• A much more economical option to managing a fleet of company cars.
• Staff motor vehicles will be ‘off the balance sheet’.
• Use of GST input credits with regard to motor vehicle expenditures.

Will Novated Leasing benefit everybody?

Novated leases can work for around 80% of people that drive a motor vehicle. The common circumstance for a novated lease is usually an individual who’s on a decent salary, purchasing a fairly high-priced car, and traveling quite a few kilometres each year, however a novated lease can nevertheless grant substantial cost savings even if you’re on a smaller salary say in the event you were looking at a less expensive vehicle and won’t perhaps travel that may kilometres.

The 3 variables that may impact the actual cost savings attained with a Novated Lease are:

• A person’s salary — individuals on greater salaries are able to save more tax.
• The buying price of the vehicle – a more expensive vehicle generally means larger savings.
• The amount of kilometres per annum you travel – additional kilometres per annum would mean increased cost savings.

Can anybody obtain a Novated Lease?

Theoretically, any member of staff at a company could enter a novated lease agreement, however,  it demands your current employer to sign the actual contract, therefore in practice, not absolutely everyone may be offered a novated lease arrangement with their employer. Typically, novated leases tend to be organized on behalf of companies by fleet managing companies.

What kind of vehicle could I secure with a Novated Lease?

One of many excellent features pertaining to novated leasing can be that in general, there are very few constraints on the kind of vehicles you are able to novate.

Novated leases are generally useful for individual’s vehicles (rather than company vehicles), therefore it is usually up to the employee to settle on their particular vehicle.

Although Novating Leasing can open up a lot of choice for an employee, it is quite common for companies to place constraints over the kinds of vehicles that may be bought within novated lease.

Am able to obtain a Novated Lease on a used vehicle?

Indeed. As well as brand new cars, novated leasing is obtainable for second hand cars, as well as your own current car within an agreement known as ’sale and leaseback’ where by a person effectively sells their current vehicle to the financial institution in order to help save tax as well as save GST on running costs. Note that there could be a restriction on the minimum valuation on the car that is to be financed.

Must I use my vehicle for business in order to save tax?

Absolutely not, you don’t need to be driving your vehicle for business purposes in order to save tax within a novated lease agreement. Actually in general, novated leases tend to be greater suited to cars that are primarily driven for personal use. If you travel a lot of business-related kilometres, you might be best to choose completely different leasing set up.

Under any novated lease, the primary variable that impacts the dollar amount of tax savings that may be attained is the amount of kilometres you travel each year. The higher amount of kilometres you travel, the larger the amount of tax you will likely save.

Is there anything to look out for?

There are not any genuine catches with novated leasing, however it makes sense to spend some time becoming familiar with exactly how novated leasing functions, and just how it varies from alternative leasing agreements. In particular, you’ll want to ensure you understand what transpires at the conclusion of your respective lease term.

Every novated leasing arrangement includes a ‘residual value’ aspect that is a lump sum payment that you will need to pay the lender at the conclusion of the actual lease term.

If you choose to sell the car at the conclusion of a lease term, and you sell for under the residual value, you’re still accountable for the shortfall that exists between the actual sale price of the car and the residual valuation.

Another factor you’ll want to have an understanding of using a novated lease, is the way in which FBT (Fringe Benefits Tax) functions. FBT is determined according to the amount of kilometres driven each year.

Should you drive less kilometres than you pre-determined at the time you entered into an agreement, it’s possible to end up getting a greater FBT liability.

Are not Novated Leases for individuals on higher incomes who drive higher-priced vehicles?

Absolutely not, novated leases can conserve a substantial amount of dollars for individuals on all incomes running and various array of vehicles. The sum of money that you’ll save using a novated lease will depend on 3 factors:

1. The amount of kilometres that you travel.

2. The price of the vehicle.

3. Ones own gross salary.

RedCarFinance.com.au can help you with your Novated Lease. Simply complete the form at the top right of this webpage and we’ll happily demonstrate how we can save you time and money when it comes to Novated Leasing.