How a fully maintained Novated Lease works
In essence, a novated lease is a contract between an employer, an employee, and a finance company. An employee enters a Car Lease agreement with the financier, for which the employer takes on the obligations of monthly repayments etc. These repayments are made from the employee’s pre-tax income.
On top of this, the car’s operating expenses such as fuel, oil, service, registration, accident management, and insurance, are deducted from the employee’s pre-tax income.
Put simply, an employer pays monthly repayments for a car from the pre-tax income of an employer, who in turn has access to the vehicle as part of a salary packaging agreement. If the car requires maintenance, fuel, or another operating expense, the employee uses a fuel card to pay for it, or arranges payment through a Naritas expert consultant.
If the employee leaves their work for any reason, the Novation Lease is terminated and the borrower takes up all repayment obligations previously covered by their employer.
Employer benefits of a fully maintained Novated Lease
Novated Leases give you the opportunity to provide a more flexible remuneration package to employees. This will help you gain higher employee satisfaction, at little to no extra cost for your business! There is also no risk to yourself if an employee leaves, as they will take over all obligations in that instance.
Offering Novated Leases is also a great alternative to operating a traditional company fleet, as there are lower costs and less administration time to maintain Novated Leases. On top of this, there are reduced costs associated with WorkCover premiums and Payroll Taxes.
If you want to save time and money, talk to Narita about offering Novated Leases to your employees, and we will arrange everything for you.
Employee benefits of a fully maintained Novated Lease
The main benefit of choosing a Novated Lease over any other kind of car financing, is that it will reduce the tax you pay on your income, and saves you GST on your car and it’s operation. This means you are saving money for the term of your car finance agreement.
A Novated Lease also gives you full control over the car, including maintenance, and you have complete choice in what car will suit your needs best. You aren’t restricted to certain models or service providers like with some other finance options.
On top of this, you will retain any equity in the vehicle, and if you move on from your job you can take the car with you by continuing to make monthly repayments on your own.
You also gain the same benefits you do from a Car Lease such as flexible loan terms and residual value, and low interest rates.
Will a fully maintained Novated Lease suit you?
Employees who wish to include a car and operating expenses associated in their salary package should look at getting a fully maintained Novated Lease. This will be viable if their employer offers salary packaging, and the employee drives enough kilometres annually to warrant the lease.
Changes announced in the Federal Government’s 2011/2012 Budget state that as of 1 April 2014 the number of kilometres travelled no longer affect an employee’s FBT liability resulting from novated lease arrangements.
Tax implications of a Fully Maintained Novated Lease
With a fully maintained Novated Lease, finance companies and employers are able to claim an Input Tax Credit (ITC) for the GST included in the upfront cost of the vehicle, monthly lease payments, and the operating costs of the vehicle. These Input Tax Credits benefits are passed on to the employee, essentially making a Fully Maintained Novated Lease GST-free (with some limitations).
GST is charged on the residual value of the lease at it’s conclusion, or if it’s terminated early. As the employer is then responsible for the Novation, they are obliged to pay GST on this figure.
Fringe Benefits Tax (FBT) is also payable on the benefit provided within the fully maintained Novated Lease, and is an expense normally passed on to the employee.
When considering a fully maintained Novated Lease, make sure you weigh it up against other options such as a non-maintained Novated Lease, Car Loan or Personal Loan, and Hire Purchase. Depending on your circumstances, a different option may be a better choice for you.
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If you are an employee and would like to know more about a Fully Maintained Novated Lease, or have any questions about the information provided here, please send us a quick online finance enquiry or call us on 1300 558 887 and one of our finance consultants will assist you.
If you are an employer wanting to establish or maintain a Novated Leasing program for your employees at no cost, Naritas can assist you, making the process simple and hassle-free for you. Please send us a quick online enquiry or call us on 1300 558 887, and one of our finance consultants will assist you.
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