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Novated Lease – A Three Way Bond

Todays Date: January 21, 2019

Novated Lease explained

A novated lease is a distinctive kind of lease accessible in Australia. It is by and large a contract between three parties; a member of staff, his boss and a lease company. The employee hires the vehicle from a company and the company presumes the employee’s responsibilities on it. The boss will then subtract money from the employee’s pre-tax salary to make the payments to the leasing company. This is identified as “salary-packaging”.

Salary packaged vehicles in a novated lease fall under the Fringe Benefit Tax in Australia; but it is on a concession basis for cars, so it might still be a tax effective way of acquiring a vehicle. It will count on the vehicle kind; the amount of kilometers traveled in a year, which FBT method is used, the employee’s earnings, and all additional charges, interest and such, charged by the leasing company.

In Australia there are three fundamental kinds of novated leases. The first is identified as a novated finance lease. This is the most central sort where the vehicle is merely rented. The second kind is a fully maintained. This is the next kind, where the vehicle and its working expenses are absorbed together. The final one is a fully maintained operating lease. This comprises the prior kind of lease, vehicle plus working costs, in addition the remaining value risk is also assumed by the leasing company or person. Even though the latter two forms of leases are supposed to offer a higher level of ease, but still there are often higher charges and unknown fees linked with them, too.

The advantages of novated lease in Australia are diverse and are multiplied between all parties drawn in it.

Advantage for the workers is clearly saving on taxes, as the lease payments come out of pre-tax earnings. The employee moreover gets to keep the vehicle and potentially shift the contract to a new company.

For the employer, it is the choice to running a fleet of company vehicles and it moreover allows them to present a smart benefit package to human resources at negligible expenditure to the company. As the vehicle in fact belongs to the employee, the company presumes no real threat.

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