Any permanent employee who has the support of their employer for salary packaging.
A Novated Lease is a three-way arrangement between you (the employee), the lessor (the Financier) and your employer, whereby a vehicle is leased from the financier under a finance lease in your name and assigned to your employer by way of a novation agreement known as a Deed of Novation.
The employer meets the commitment and then recovers this amount from your salary package. The lease, the Fringe Benefits Tax (FBT) and the operating costs associated with running the vehicle are deducted from your gross salary, thus reducing the income tax you are obliged to pay.
Under this arrangement, the employer does not have responsibility for the residual value, which remains with you. If you leave your employer, the ongoing commitment reverts to you.
A novated lease is a cost-effective way to purchase a new or used car, allowing you to gain income tax and GST savings through your employer, as well as get access to fleet discounts on your new vehicle.
Because you pay for your vehicle running costs from your pre-tax income you will be able to reduce your taxable income. Plus, because all your vehicle running costs are covered with one regular payment, it makes budgeting a breeze.
All your car’s major running costs are covered:
The residual value (sometimes known as a balloon payment) is the amount of money remaining on your car at the end of the finance period. This amount is fixed and attracts GST. The residual value is calculated at the beginning of the lease and is payable at the end of the term.
The minimum residual value is set by the ATO and is usually expressed as a percentage of the amount financed.
Once your lease term expires you’ll need to pay the residual value. Or you may have the option to re-finance your car for another term.
If the market value of the vehicle is less than the residual value, the resultant shortfall will be your responsibility. Likewise, should the market value be more than the residual value, the surplus shall be to your benefit
Unless your employer has set specific guidelines, you’re available to choose any car, any make, any model from anywhere within Australia. This can be:
If you leave your employer for any reason, the deed of novation (your lease agreement) terminates immediately. This means that your employer is no longer responsible for the lease payments and the obligation switches to you.
You can then choose to either:
When you take out a novated lease you reduce your taxable income, which reduces the amount of income tax you need to pay. To make up some of the shortfall, the Australian Taxation Office (ATO) levies another payment called Fringe Benefits Tax (FBT) on the non-salary portion of benefits your employer provides.
The Statutory Formula method is a common method of calculating Fringe Benefit Tax (FBT).
The FBT Taxable Value is calculated as follows:
FBT Taxable Value = FBT Capital Value x Statutory Percentage x (Number of days in the FBT year the vehicle is available for use / 365)
The FBT Rate is currently 20%
You can also pay for some of your novated lease expenses from post-tax income to reduce your FBT payments. This is known as the Employee Contribution Method (ECM). We’ll work with you to structure your novated lease payments using the right combination of pre-tax and post-tax dollars to reduce your FBT liability and maximise your income-tax savings.
FBT is calculated based upon the FBT year, which runs from 1 April to 31 March.
For novated leases that commenced after 7.30pm on 10 May 2011, the statutory percentage is a flat rate of 20% regardless of the amount of kilometres your car travels.
You should still track your travel to make sure you’re staying within your budget. You can check this by logging into the members section of the Leasexpress website.
For novated leases entered into before 7.30pm on 10 May 2011 the statutory percentage and your FBT rate may vary depending on the amount of kilometres your car travels.
If you fall into this category and would like more information, please contact us on 1300 36 36 30 or email email@example.com.
The days on which the car fringe benefit is provided is calculated as the number of days the vehicle is available, or deemed available for private use.
A car is available or deemed available for private use if:
You can package as many vehicles as you’d like, as long as your employer agrees and you’re able to service the monthly payments.
Chat with us about your car leasing options if you’d like to package up two or more vehicles.
There are a few reasons that an employer would choose to offer a novated lease option for their employees.