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Novated Lease – A Fruitful Pay Package

Todays Date: October 17, 2018

Under a novated lease agreement, you take over the entire or fraction of the lessee’s rights and responsibilities in the car leasing. This transfer of rights and contractual obligations is settled in a legal document of novation amid you, the car finance company and the leaseholder. The holder is generally the employee or his associate.

A Novated Lease goes well with any employee who wishes to incorporate a car as an element of their pay package, so long as their company offers pay packaging as an alternative for recruits.

Tax insinuations of a Novated Lease explained

In a Novated Lease, the car finance company and owner can allege an Input Tax Credit (ITC) for the GST incorporated in the acquisition cost of the car and the monthly lease expenses. The advantage of these Input Tax Credits is deceased to the employee, basically making it GST-free (conditional on some limits).

At the conclusion of the lease or in the episode of early termination, GST is charged on the remaining value, and as the Novation reverts back to the employee, he is accountable for compensating the GST on the outstanding value.

Fringe Benefits Tax (FBT) is moreover payable on the assistance offered through the Fully Maintained Novated Lease and this expenditure is usually passed away to the employee. For a number of years the sum of FBT has been reliant on the kilometers travelled every year – the high the kilometers, the lesser the FBT , even though this FBT could be counterbalanced through employee offerings to the managing expenses of the car (the Employee Contribution Method (ECM).

In the 2011/2012 Federal Budget, the Federal Government launched a new legislation that implies the FBT benefits of travelling more kilometers will be phased out over the subsequent three years. From 1 April 2014, FBT estimates will be derived from the similar method, irrespective of the kilometers travelled.

What sort of novated lease agreements are there?

There are two major sorts of novation agreement:

  • A full or split full novation.
  • A partial novation.

Full novation arrangement

In a full novation agreement, employer is in charge for making the lease expenses and assuring the remaining value of the motor vehicle at the conclusion.

Split full novation agreement

In a split full novation agreement, employer is accountable for making the lease payments; however he is not liable for guaranteeing the remaining value of the car at the conclusion. The employee keeps hold of this responsibility.

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