- February 8, 2018
- Posted by: Phoenix Consultancy
- Category: Finance & accounting
Novated leasing is one of those topics that can be hard to wrap your head around, but it is actually simpler than it seems. Novated leases have been booming in popularity over the last few years in Australia, and with good reason.
A novated lease (also referred to as salary sacrificing), can provide employees with a very cost-effective solution to owning a new car. The agreement is a three-way arrangement between an employer, an employee seeking to purchase a car, and a lease company. The lease company provides the employee with the funds they need to make the purchase, and the employer pays for the loan.
Novated leases are used as an extra incentive – to reward employees at no extra cost, as well as to attract and retain the best talent. A novated lease benefits the employer by eliminating the burden of managing a company car or fleet and offers freedom and reduced income tax for employees.
Wondering whether a novated lease might be right for you and your staff? Our expert accountants and advisors answer the most frequently asked questions to give you the full picture.
Are my staff eligible for a novated lease?
As long as they are employed, they are eligible for a novated lease. That is that they’re earning a wage and paying tax. Some conditions may apply, such as that they are not on employment probation and do not have a bad credit history, but typically speaking all permanent employees are eligible.
Can someone only take out a novated lease through their employer?
Yes. As it’s a salary sacrifice, the arrangement requires that the person purchasing the car is employed and the loan is payed for by their employer. Once the employer is on board the employee will have the opportunity to meet with the leasing company and talk figures, vehicle options and discuss the best arrangement for their needs and situation. After that finance approval will happen and the arrangement will be confirmed with the employer. Next, the tender process begins, and the leasing company will obtain competitive quotes for the vehicle they’re after, negotiating the best possible price. Once they find the right car at the right price and the finance has been settled, then the car is delivered!
Do you need to earn a high income?
No. It’s a common misconception that you need to be a high-income earner to be able to take out a novated lease. Salary sacrificing can benefit anyone, whether they have a low or high income. As long as they can afford the repayments then their income is high enough.
How much money can it save?
A novated lease has the potential to save an employee thousands of dollars each year. As the payments for the car and the associated running costs are made by the employer out of the employee’s pre-tax income, their taxable income is reduced and they pay less income tax. How much they save will vary depending on the car they buy and their income.
As an example, someone earning $80,000 a year who packages a $40,000 car would save about $3,200 a year over four years. This includes savings on income tax and the associated running costs of the car. They could save an additional $2,000 – $3,000 on the cost of the car, as finance companies can usually secure a better deal.
What is included in the monthly payments?
A novated lease allows employees to bundle the cost of the car finance as well as all vehicle running costs into one simple payment. The novated lease can include:
- Service and maintenance
- Replacement tyres
- Registration and CTP
- Comprehensive motor insurance
- Roadside assistance
- Lease protection insurance
- Management fee
Is a novated lease just for new vehicles?
No. A novated lease can be used to purchase a new or used vehicle. Or a novated lease could even be taken out on an employee’s current car, to take advantage of the tax savings.
In summary, there are many benefits to purchasing a car using a novated lease. Novated leasing offers choice, convenience and huge financial savings. The benefits of a novated lease are that the employee receives a considerable tax saving and a new car, and the employer finds a tax-efficient way to reward their team or to increase salaries. Employers will also get a reduction in payroll tax and compulsory superannuation contributions.
Novated leases offer a cost effective opportunity to reduce tax bills, and make one’s money go further.
If you’re interested in finding out more about Novated Leasing for your business or yourself, speak to our finance specialist, Kunal Acharya at Phoenix Lending Solutions by calling 08 6444 6311 or email email@example.com