Fully Maintained Novated Lease
A Fully Maintained Novated Lease is a tax effective form of financing a vehicle. It involves an agreement between an employee, their employer and a financier. This agreement allows the vehicle finance and the costs associated with owning a vehicle to be deducted from the employee’s pre-tax income.
What vehicle costs are included?
- Vehicle Lease Payments
- Repairs & Maintenance
- Comprehensive Insurance
- Vehicle Registration
- Compulsory Third Party (CTP) Insurance
- Australia-wide Road-side Assistance
How do employees benefit from a fully maintained novated lease?
Save money – as the vehicle costs are taken from the employee’s pre-tax salary, it reduces the amount of income tax payable by the employee. The employee also saves the GST on the purchase of the vehicle and the associated operating costs.
Choice – the employee chooses the vehicle that best suits their needs.
Control – the employee controls the vehicle car, including care and maintenance.
Portability – the employee can take the vehicle and lease to another employer if changing employers.
The employee retains any equity built up in the vehicle, not the employer.
How do employers benefit from a fully maintained novated lease?
The ability to offer a more flexible remuneration package to the employee with little-or-no extra cost to the employer.
No risk to the employer as the vehicle reverts to the employee at the end of the lease or upon termination.
An employer is able to claim back the GST on the lease on behalf of the employee.
By offering this service as apart of an employee’s package, employers are better able to attract quality staff.
What is involved from an employer’s perspective?
Under this arrangement, the employer pays the monthly lease rentals on behalf of the employee to the Fleet Management Company, and provides the vehicle for the employee to use as part of their salary packaging arrangement. When the vehicle requires fuel or maintenance, the employee pays for these with a fleet card or by arrangement with the Fleet Management Company.
If employment ceases for any reason, or the lease agreement is finalised, the Novation ceases and the obligations assumed by the employer revert back to the employee.
Tax Implications of a Fully Maintained Novated Lease
Under a Fully Maintained Novated Lease, the finance company and employer can claim an Input Tax Credit for the GST included in the purchase price of the vehicle, the monthly lease payments, and the operating costs. The benefit of the Input Tax Credits is passed on to the employee, essentially making a Fully Maintained Novated Lease GST-free.
At the end of the lease, or in the event of early termination, GST is charged on the residual value of the lease, and as the Novation reverts back to the employee, the employee is responsible for paying the GST on the residual.
Fringe Benefits Tax (FBT) is also payable on the benefit provided through the Fully Maintained Novated Lease, and this expense is normally passed on to the employee. The amount of FBT depends on the GST inclusive value of the vehicle and the amount of kilometres travelled each year. The FBT can be offset through employee contributions to the running costs of the vehicle via the Employee Contribution Method (ECM).