SCC Chartered Accountants

   

Novated Lease

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 vehicle finance to deliver some attractive benefits for both employers and employees.

A novated Lease is a 3 way agreement between an employer, an employee and the financier. This is where the obligation to meet the repayments under the finance lease agreement is with the employer.

With a novated lease agreement, the employee owns the vehicle and has the right to take it with them should they change jobs and, where structured correctly, there may be tax advantages with their remuneration package.

As with other leasing structures, repayments with a novated lease are flexible and amounts depend on the term, interest rate, amount borrowed and the residual payment.

Benefits of a novated lease for the employee include:

• Greater flexibility with the choice of a vehicle
• Financing of the vehicle may be paid with pre-tax dollars
• Option to own the vehicle at the end of the novated lease term
• The vehicle may be leased for 100% private use
• More than one vehicle may be leased with employer consent

Benefits of a novated lease for the employer include:

• An easy and cost-effective way to add value to an employees remuneration package
• Time and costs associated with management and disposal of the vehicle are not the employer's responsibility
• On termination of the employees employment or novated lease, the responsibility of the vehicle is passed on to the employee

Other issues that need to be addressed with a novated lease include:

• Salary Costing
• FBT (fringe benefits tax) calculations
• Fuel costs, maintenance costs calculation
• Current vehicle disposal

Easy steps to establishing a novated lease

1. Establish whether your employer offers salary packaging and novated leases or, at the very least, is agreeable to looking at the benefits of such an arrangement
2. Obtain general information on novated leasing, this can be obtained from sources such as:
   • your accountant
   • your financial adviser
   • your mortgage broker
   • a salary packaging company
   Discuss how your personal financial situation fits into a novated lease arrangement and the advantages and disadvantages that apply.
3. Decide on a vehicle
4. Confirm that the cost of the vehicle fits in with your personal financial situation
5. Shop around and negotiate a fleet discount if possible
6. Choose novated leasing financier
7. Ensure that the supplying dealer will issue a tax invoice directly to chosen financier.
8. Finance should always be approved first (if not, the order may be cancelled)
9. Deed of novation prepared and signed by relevant parties
10. Arrange for your payroll or HR department to set up deductions from pre-tax salary