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Novated Lease

A Novated Lease can be both cost and tax-effective, as the employee gains the benefits of the lease payments, running costs and Fringe Benefits Tax being paid from pre-tax income.

What is a Novated Lease?

A novated lease is a three way agreement between the employer, employee and the financier, and works as follows: The employee decides what type of motor vehicle they want, ie: new or used, sedan, wagon, 4×4, sports coupe etc, and after selecting the particular vehicle to suit their needs, enters into a finance lease with the financier.

The employer, employee and financier sign a Novation Agreement, whereby the employer agrees to take on the employee’s obligations under the lease. Under this arrangement, the employer makes the monthly lease payments on behalf of the employee. Should the employee leave his or her employment for any reason, the Novation Agreement ceases and the obligations assumed by the employer revert to the employee.

Benefits of a Novated Lease Choice of Vehicle

As a salary packaged vehicle is not part of the company fleet, employees can choose the make and type of vehicle (new or used) that best suits their needs.

The vehicle and finance lease are portable, and should an employee change jobs, they take both with them and simply enter into another Novation Agreement with their new employer and the financier.

As the lease is in the employee’s name, and lease payments are deducted from their salary package, the employee can realise any equity built up in the vehicle over the duration of the lease.

By salary packaging a vehicle via an Novated Lease, employees can benefit from using a smaller portion of their income to run the vehicle, and enjoy a lower rate of tax on the benefit, than if they were to pay for the running costs of the vehicle using after tax income.

Motor vehicles can be an attractive component of any remuneration package because they are concessionally treated for Fringe Benefits Tax purposes.

Would you like more information?

You can give us a call on 03 9429 3000 or fill out the form and we’ll have an expert consultant get back to you.
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