Novated Leasing
What is a Novated lease?
A novated lease is a form of salary packaging, it is a three way agreement between an employee, an employer and the Loans provider.
How does a novated lease work?
Under a novated lease 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 lease features
- Ability to cost effectively package a vehicle
- Choice of vehicle
- Terms range from 12 to 60 months
- Tax savings as repayments are deducted pre-tax
- Fixed rates for the term of the novated lease
- A novated lease is totally portable to next employer
Who does a novated lease suit?
A novated lease suits any employee who wants to salary package a car. Their employer must be willing to offer the novated lease as an option for employees and sign a "deed of novation".
Novated lease 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 lease 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 traveled each year or amount of business use. The higher the kilometres and business use, the lower the FBT. Where the amount Loansd 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).
ATO motor vehicle fringe benefits tax calculator
Here is the link to the ATO's fringe benefits tax online calculator, use this to calculate the fringe benefits value (FBV) of a motor vehicle. FBV Calculator