While we deal with novated lease arrangements every day and are across all the ins-and-outs and benefits of a novated lease for employees, we also understand that it’s not so straightforward.
Terms like FBT, residual value and statutory percentage can be confusing, while with changes in legislation and rules for novated leasing, it can be hard to keep track of what’s what.
In this article we’ll lay out exactly what a novated lease is and how it works. We’ll also explain some of those terms that go along with a novated lease.
A novated lease is a three-way arrangement between you (as the employee), the lessor (also known as the financier, which is Leasexpress in this case) and your employer. A vehicle is leased from the financier under a finance lease in your name, which is then assigned to your employer by way of a novation agreement known as a Deed of Novation.
Your employer meets the lease payments and the operating costs associated with running your vehicle, and these costs are deducted from your gross salary, thus reducing the amount of income tax you need to pay.
A portion of the repayments will be made from your post-tax pay, which effectively eliminates FBT dollar-for-dollar.
Because you pay for the lease costs and associated operating costs from your pre-tax income, a novated lease is a more cost-effective way to purchase a new or used car. As well as income tax savings, you’ll also be able to access GST savings through your employer and get fleet discounts on your new car purchase and associated service and maintenance costs.
Your novated lease payments include all your major vehicle running costs, like lease finance, insurance, registration, fuel, vehicle maintenance and roadside assistance. You’ll only have to worry about one weekly, fortnightly or monthly payment (drawn directly from your salary) rather than including these costs in your regular household budget.
When you take on a novated lease arrangement, you’ll sign a contract that usually runs anywhere from one to five years. At the end of this period there’ll still be an outstanding amount payable on the value of the car, which you’ll be responsible for paying. This is known as the residual value or the balloon payment. This residual value is calculated at the beginning of the lease so you’ll know what your payment will be at the end.
Instead of paying out your car, you can also chat with us about refinancing your car for another novated lease term or purchasing a new vehicle under a new novated lease.
At Leasexpresss, we’re novated leasing and fleet management specialists. We’ll work with you to help you structure a novated lease that best suits your situation. If you’ve got any questions about taking out a novated lease just call to chat with one of our friendly and knowledgeable specialists.