What is a Novated Lease

To enter into salary packaging arrangement for a motor vehicle, an arrangement called a Deed of novation is prepared. This is commonly called a Novated Lease which is a three way agreement between an employee, financier an employer. Under a deed of novation, all rights and obligations (generally, excludes obligation to the residual value) are transferred to the employer during the term of the lease or the term of the employment of the employee.

A vehicle is leased from the financier under a finance lease in the employee name and is Novated (assigned) to your employer by the way of a deed of novation. This enables the employer to pay for the costs of the lease together with all of the operating costs associated with the running of the vehicle. The total of all the operating costs are deducted from your gross salary, thus reducing your gross income and the income tax you are obligated to pay.

Benefits of a Novated Lease to the Employee:

• Choice of any make or model of car.

• The Novated Lease is transferable to a new employer.

• GST savings on car. Income tax savings.

• Choice of service providers.

• Fleet discounts on new car purchases.

• Online web based fleet management reports.

• Unlimited private use of car.

Benefits of a Novated Lease to the Employer:

• Cars off balance sheet.

• No residual risk on cars.

• Employees assume the ownership of the vehicle when they leave your company.

• Employers can offer a more personalized remuneration packages to entice better quality staff.

• Online FBT reporting on all staff vehicles.

• Professional support and personal account managers per company.

What is a fully maintained novated lease?

With a maintained Novated Lease all finance payments and operating costs are included in to a employees salary packaging. These maintained items include:

• Lease payments.

• Service and maintenance.

• Car comp insurance.

• Registration.

• Tyre replacement.

• Roadside assist.

• FBT (if using full FBT method)

What is a FBT Year?

FBT is calculated based upon the FBT year which runs from 1st April to 31st March. Please note that the distance traveled is pro-rata per year. For example, if you take delivery of your new car on 1 October and have nominated 25,000kms as your annual distance, you must have travel at least 12,500kms by 31 March of the next year.

What is the Employee Contribution Method (ECM)

Using the employee contribution method with current tax scales is generally more effective in reducing the FBT liability for employees who are not in the top marginal tax bracket. The employee contributes to the running cost of the vehicle from post tax income. The amount of the employee’s after-tax contribution if equal to or greater than the cars taxable value would mean the employee will have no reportable FBT liability.