With a novated car lease, your car loan payments come from your pre-tax income, reducing the total amount of tax that you pay.
You sign an agreement with the finance company, which you will ultimately be responsible for, which outlines the terms of the loan.
You will also have what’s called a salary sacrifice agreement with your employer, under which they’ll make the payments towards your novated car lease from your pre-tax income while you’re employed with them.
You might use a novated lease calculator to get an idea of how the loan will affect your personal budget.
It’s important that you understand the terms of you novated car lease. If you change employers, you can take the lease agreement with you. You’ll also need to know who is responsible to pay any residual or balloon payment that may be part of the terms of the lease.
Because the car is for your personal use, rather than for work purposes, you’ll have much more choice over the type of car that you can buy. The only restrictions are that you can’t finance a motorbike, a car with more than 8 seats, or vehicle with a payload over 1 tonne. This leaves you with a huge range of choice to find the perfect car to suit your lifestyle outside working hours.
Positive Lending Solutions can help you to arrange a novated lease if your employer doesn’t already have the arrangements in place.
With a novated car lease you can finance a family car, a small run-about to get you from A to B, or an SUV for weekends full of adventure. You can even choose to go green with an electric car or hybrid model - use this Green Vehicle Guide to pick a car with higher fuel efficiency and minimal CO2 emissions, and you’ll be contributing to a cleaner future for Australia.
Now you know what a novated lease is and whether it’s the type of car loan that will suit you, you’ll need to know what steps you’ve got to take to arrange a novated lease for your new car.
If you’re looking to retain employees by offering more benefits without giving a pay rise, novated leasing is one way you can assist your valuable employees to get ahead without hurting your bottom line.
By making payments towards the novated car lease on behalf of your employees from their pre-tax salary, you leave them with more take-home pay than if they were making payments on an ordinary car loan for a vehicle of the same value.
Give employees a pay-rise, without increasing your payroll.
You’re essentially giving them a pay-rise, and all without increasing your expenditure. And if an employee leaves your company for any reason, they’ll become responsible for the remainder of the lease, so you’ve got nothing to lose.
The deed of novation that you will sign is an agreement between you (the employer), the financier and the employee. It states that you will take over the obligations of the lessee (your employee) to make regular payments on the lease.
Under a full novation the employer makes the lease payments for the term of the car loan, or whilst the employee is employed at that organisation. The employer will also pay any residual or balloon payment owing at the end of the lease from the employee’s pre-tax wages.
Under a split full novation, the employer is responsible for making the regular lease payments for the term of the loan, or whilst the employer works for them. At the end of the loan term, the employee will need to pay any residual or balloon payment owing before they take full ownership of the vehicle.
To counter the tax reductions gained by salary sacrifice, you’ll need to pay Fringe Benefits Tax. There’s 2 ways that this can be calculated so you can work out if you’ll be paying more tax by signing novated lease rather a regular car loan (or outright purchase).
Most people will use the statutory formula, because it doesn’t require extensive record keeping. The other option is to use what’s called the ‘operating cost’ method. You can choose whichever gives you the most advantageous outcome.
You can reduce the amount of Fringe Benefits Tax that’s paid on the vehicle with an employee contribution made after tax towards the running costs of the car. This will mean providing a declaration form for items like fuel and oil. For other types of contribution you’ll need to provide a receipt of invoice.
You can find out more about how to reduce the tax you’ll pay on your car on the Australian Tax Office website.
There’s no GST implications for employers when an employee makes a post-tax contribution towards the operating costs of the car under the novated lease.
If you’re a full time employee and you’d like to find out more about how you can use pre-tax income to purchase your next car, you can start an application online and one of our car loan brokers will be in touch with an accurate quote for novated lease options.
Or if you’re an employer looking to add some benefits for your employees and attract top quality talent, you can definitely get in touch about our salary packaging novated lease options. You can call 1300 722 210 or fill out a quick quote form and we’ll get back to you with more information on how you can use novated leasing to improve your employee offerings.