If you’re an employee, this is a cost effective way to purchase a new (or used) car. You don’t have to pay GST on the purchase price, you can use your car for both business & personal use & your running costs can also be included in your arrangement. Your employer pays the vehicle payments and running costs for you from pre-tax salary, which means you will also pay less tax.

As an employer, the benefits are simple. You get to claim the GST back on the purchase of the car, increased deductions throughout the year including interest on repayments, depreciation & running costs of the car & this arrangement can have a great impact on employee satisfaction. However, please note that a novated lease is considered to be a car benefit & a fringe benefits tax liability may arise.

Finally, a benefit for both parties is that in the event that employement ceases, the obligations and rights under the lease revert back to the (former) employee. This benefits the employee as they get to keep their car (with no tax consequences), but also the employer as they are not left with an extra vehicle or a financial commitment for it.

Specifically, a novated lease is an arrangement where an employee enters into a lease with a finance company & the employer enters into a deed of novation with both the employee & the finance company. Under the deed of novation, the employer may agree with the employee and the finance company to take on all, or some, of the employee’s rights & obligations in the original lease agreement. Under a full novated arrangement, the empoyer is responsible for guaranteeing the risdual value of the vehicle at the end of the lease. As the effective life of a motor vehicle is 8 years, here is a table to guide you in calculating the minimum risidual value for your novated leases’;

Would you like to learn more about how a novated leases could benefit you? Give your accountant at HTA a call to discuss.

Posted by HTA Advisory