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A novated lease is a type of car lease which allows a business to lease a motor vehicle for (or on behalf of) one of their employees, with the responsibility for the lease lying with the employee and the lease payments being made from the employee's pre-tax income (known as salary packaging). Novated leases are an effective way for employees to get the tax benefits of leasing a vehicle without needing to have an ABN.
How does a Novated Lease work?
A Novated Lease is an agreement between an employer, employee and finance company whereby the employee enters into a car lease with the finance company, whilst the employer agrees to take on the employee's payment obligations for the lease (presumably the employer then includes the car payments as part of the employee's salary).
If, for some reason the employee ceases employment with the original company, or if the lease agreement is finalised, the novated lease contract ceases and the obligations assumed by the employer then revert back to the employee (check out Wikipedia's article on novated leases for more information if you're interested).
Benefits of a Novated Lease
- Employees can choose a car they like, rather than getting the one the company chooses for them
- Employees take the vehicle with them if employment ceases and transfer it to a new employer
- The finance company is paying the GST, which reduces the cost
- The lease payments come out of the pre-tax part of your income so it can be much more cost-effective
- The equity in the vehicle remains with the employee, not the employer
- You also get all the other benefits of a car lease
- There is no residual risk
- A novated lease option on an employment contract is a flexible way of including perks an employee is interested in
- Less paperwork than 'company cars' - they're not on the balance sheet
Who are Novated Leases suitable for?
- Novated Leases suit any type of employee who is interested in making a vehicle part of their salary package.
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