What
is Novated Leasing?
A novated lease
(colloquially know as ‘salary sacrificing’) is basically a three-way agreement
between an employer, an employee and a finance company. The employee gives
consent to “sacrifice” some pre-tax salary to pay for their vehicle. The
employer agrees to make the payroll deduction on the employee’s behalf. The
finance company sets up the deal and handles administration. If the package is
structured intelligently, at the end of the term all the employee needs to do
is hand the keys back and decide what car to buy next. Novated leases are a
popular form of cost- and tax-advantaged car financing and the government
estimated that there are approximately 320,000 drivers in Australia who are
currently salary sacrificing a car.
“Even if you use
your car exclusively for private purposes, the government gives you an 80%
concession on the FBT. It’s a significant benefit,” explains Bill Baker from novatedleasing.com.au.
“When you purchase
a car using a novated lease, you buy it essentially GST-free. The repayments
come out of your pre-tax salary, which means that some of the funds you’d
otherwise pay in tax help you pay for the car. It reduces your taxable income.
The entire ownership cost – inclusive of insurance, registration, fuel and
servicing, can even be wrapped up into the one consistent monthly payment.”
Novated leases are
also an opportunity for employers to reward key employees – at next to no
additional cost on the bottom line. Key employees have a huge impact on
profitability, and novated leases represent a significant benefit to those
employees – and at the same time all that’s really required to make them happen
is appropriate paperwork and a monthly payroll deduction.
Myths
About Novated Leasing
Nevertheless there
are a few myths associated with novated leasing, as follows:
Myth:
Novated leasing is an administrative nightmare
While some
employers might perceive that novated leasing constitutes an administrative
burden, this is not actually the case. In practice, financiers manage the
admin. There is initial paperwork, but once a novated lease is in operation,
there is just one monthly invoice to pay, which can be automated.