A novated lease arrangement provides significant benefits to both employers and employees. Employers commonly use it as part of their salary packaging arrangement. This enables them to extend significant financial benefits to the employees with the business incurring little or no cost.
How Novated Leasing Works
lf the employer offers novated lease as a salary package option, then the employee can select the vehicle that suits his or her lifestyle, the make and model, used or new, wagon, or sedan without the restrictions imposed by traditional company fleet.
The employee purchases the vehicle and also enters into a finance agreement in his or her name. The novation agreement is signed by the financier, the employer, and the employee after the purchase of the vehicle. The employee agrees to sacrifice a portion of the salary or earnings in lieu of the benefit of the car which is equal to the same amount.
ln this type of an arrangement, the lease payment, vehicle running costs and the vehicle and the fringe benefits tax (FBT), as applicable, are deducted from the pre-tax and post-tax earnings of the employee. The PAYG income tax, therefore, is calculated on the remaining salary of the employee. This effectively increases the employee’s net disposable income because of the reduction in tax paid.
lf the employee leaves the company or the lease agreement ends, then the employee retains the vehicle. However, all the obligations that the employer agreed to assume under the novation agreement will be reverted back to the employee.
Types of Novated Leasing
Mainly, novated leases are of two types: non-maintained and fully maintained. Some employers may offer only one type, whereas some others may offer a choice to their employees.
Non-Maintained Novated Lease
A non-maintained lease is also referred to as a finance-only novated lease. In the case of such an arrangement, the employee will have to meet all costs associated with running as well as maintenance of the vehicle and the employer deducts only the lease rental and the fringe benefit tax (FBT), as applicable, from the employee’s salary package.
Fully Maintained Novated Lease
In the case of a fully maintained novated lease, the employer includes all operating costs of the vehicle as part of the employee‘s salary package. The operating costs that are generally included as part of the package are lease rental or repayments, service and maintenance, oil and fuel, tyres, registration, comprehensive and other insurance, running costs, accident management and FBT reporting. The employer then deducts all costs and FBT, as applicable, from the employee’s salary package.
Bcneñts of Novated Leasing
Novated lease arrangement provides a host of benefits to employees and employers.
Benefits to Employees
Benefits enjoyed by employees include the following:
- Potential for significant savings in income tax as the costs are paid from the employee’s pre-tax income
- Savings on Goods and Services Tax (GST) which are normally levied on vehicle expenses
- National fleet discounts if the employer offers novated lease benefits to its employees
- Employees have the freedom to choose the vehicles they want as the salary packaged vehicle does not form part of the employer’s fleet
- The vehicle is available for employee’s use 100 percent of the time without any restrictions as to who can or cannot drive it
- lf the employee changes his or her job, then he or she can enter into a new novation agreement with the financier and the new employer
- Fixed lease repayments
- Flexible lease terms ranging from 12 months to 60 months
Benefits to Employers
Some of the benefit that employers can enjoy are as follows:
- It enables them to exercise more flexibility in terms of remuneration provided without adding any cost to the business
- It provides savings in terms of time as well as money when compared with the hassles associated with the management of a company fleet
- It eliminates the residual-value risk associated with a company fleet
- The employer’s responsibility ceases if the employee leaves the company and the hassles of managing surplus vehicles are also avoided
- Vehicles provided to employees under novated lease agreement are not required to be included in the balance sheet as they are neither assets nor líabiiities
Steps Involved in Arranging Novated Leasing
Getting started with novated leasing involves the following steps:
Step 1. Select the vehicle of your choice and Call Fleet Network. Or let Fleet Network assist you in the selection of your vehicle.
Step 2. Fleet Network will produce a quote on your salary package car.
Step 3. Complete the application for finance.
Step 4. On receipt of approval of finance place an order for the new or used vehicle.
Step 5. The finance as well as the novation documents will be prepared by your finance consultant.
Step 6. Once all required documentation is completed, Fleet Network will make a payment to the dealer, have the salary deductions set up with your employer, and you can take delivery of the vehicle.