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What is Novated Leasing?

Novated Leasing is a form of salary packaging; it is a three way agreement between an employee, an employer and the finance provider.

How does Novated Leasing work?

Under Novated Leasing the employee leases a vehicle and the employer takes on the employee’s obligations of the lease and pays the monthly lease rentals and collects it from the employee’s pre-tax salary.

Novated Leasing Features

  1. Ability to cost effectively package a vehicle
  2. Choice of vehicle
  3. Terms range from 12 to 60 months
  4. Tax savings as repayments as deducted pre-tax
  5. Novated Leasing rates are normally fixed for the term
  6. Novated Leasing is totally portable to next employer

 

Who does Novated Leasing suit?

Novated Leasing suits any employee who wants to salary package a car.  Their employer must be willing to offer Novated Leasing as an option for employees and sign a “deed of novation”.

Possible Novated Leasing Taxation Implications

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.

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

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 travelled 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 (currently $57,180) the employer claims the Novated Leasing payment as a business expense.  Above the Depreciation Limit, they claim the interest charges and depreciation up to the value of the Depreciation Limit. (currently $57,180)

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* Information contained within this article is correct at time of writing and is general information only. This should not be taken as financial advice.

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