A novated lease is a form of salary packaging and is a three way agreement between an employee, an employer and lender.

How does a novated lease work?

Under a novated lease the employee leases a vehicle and the employer takes on the employee’s obligations of the lease and pays the monthly lease rentals and collects it from the employee’s pre-tax salary. The novation reverts back to the employee at the end of the lease.

Novated lease features

Ability to cost effectively package a vehicle

Choice of vehicle

Terms range from 12 to 60 months

Tax savings as repayments are deducted from Pre-tax Salary

Fixed rates for the term of the novated lease

A novated lease is totally portable to next employer

Novated lease taxation implications

GST is charged on the residual value at the end of the lease and is payable by the employee.

GST is charged on the monthly novated lease payment and is claimable by the employer on their BAS, as long as the employer is registered for GST. The benefit to the employee is that only the gst exclusive amount is charged against their salary package.

Fringe Benefits Tax (FBT) is payable on the motor vehicle, and this expense is normally passed onto the employee. The amount of FBT depends on the GST inclusive value of the vehicle and the amount of kilometres travelled each year.

If the amount financed is below the Depreciation Limit, the employer can claim the novated lease payment as a business expense. If it is above the Depreciation Limit, the employer claim the interest expense and depreciation, in lieu of the lease payment, up to the value of the Depreciation Limit.