Novated Lease Benefits

A Novated Lease has become an increasingly popular form of car financing over the last few years in Australia.

A Novated Lease has many features and can provide some remarkable profits for both employers and employees.

Benefits of a Novated Lease to

Employee

• Vehicle Choice, employee may choose the make and model of the car
• Reduced tax (based on lowering your taxable income)
• Vehicle Choice, employee may choose the make and model of the car
• The opportunity to make money on the difference between the residual and the market value of the car
• The vehicle may be leased for 100% private use
• Option to own the vehicle at the end of the novated lease term

Employer

• If registered for GST (goods and services tax), may claim an input tax credit on every payment
• The employer does not have to supply and manage a company vehicle for you
• The employer does not acquire the asset
• An easy and cost-effective way to add value to an employees remuneration package
• On termination of the employees employment or novated lease, the responsibility of the vehicle is passed on to the employee

Tax Benefits of a Novated Lease

GST is charged on the monthly novated lease payment and as long as the employer is registered for GST, they can claim this back on their BAS.

GST is also charged on the residual value on the lease, and as the Novation reverts back to the employee at the end of the lease, the employee is responsible for paying the GST on the residual.

Fringe Benefits Tax (FBT) is payable on the motor vehicle, and this expense is normally passed on to the employee. The amount of FBT depends on the kilometres traveled each year or amount of business use. The higher the kilometres and business use, the lower the FBT.

Where the amount financed is below the Depreciation Limit ($57,180), the employer claims the novated lease payment as a business expense. Above the Depreciation Limit, they claim the interest charges and depreciation up to the value of the Depreciation Limit ($57,180).