Put simply, it’s a three party agreement, a finance lease established by an individual and the finance company, with their employer agreeing to take over all rights and responsibilities of the lease for the duration of the lease or until the individual leaves that employer. All finance costs and other costs to maintain the vehicle (insurance, fuel card, maintenance, tyres etc.) are paid by the employer using pre-tax dollars and reducing the employee’s taxable income.
Whilst a fringe benefits tax is payable, subject to each individual’s circumstances, it is common for the employee to improve their take home pay simply taking the finance as a novated lease using pre-tax dollars.
Employer benefits of a novated lease
- Reduced motor vehicle administration – when purchasing vehicles and establishing finance, ongoing day to day management and also disposing of vehicles
- Comprehensive reporting, including FBT Reporting
- Potential significant tax benefits (payroll, Medicare… individual company benefits should be confirmed by your accountant)
- No unwanted “pool cars” when employees leave resulting in excess vehicles
- No loss on resale of vehicles
- Ability to become the employer of choice by offering employees flexibility and potential income maximization.
Employee benefits of a novated lease
- Choice of motor vehicle (new or used)
- Savings on purchase price through MotorFleet
- Potential tax savings to increase take home pay from salary packaging
- Able to structure finance to suit you
- Potential to gain equity in your vehicle
- Employer may pass on GST input tax credits to the employee, which will reduce the monthly lease repayments
- Able to take your vehicle and the novated lease with you to another employer so you can keep your car even if you change employer
- Access to fuel discounts
- Full service and maintenance management, with qualified mechanics authorizing all vehicle work at trade pricing minimizes costs
- Easy budgeting of vehicle expenses as one deduction of salary before you get paid covers all vehicle expenses (except fines and infringements which are still yours to pay)
- Unlimited private use
- Able to package another family members vehicle
Theoretically a novation agreement can be used with almost any form of lease. Typically, a novated lease is structured as a finance lease although novated operating leases (contract tental) are also becoming very popular.
What is vehicle salary packaging?
Salary Packaging occurs when an employee forgoes the right to receive income in exchange of the provision of a non-cash benefit. This reduces the employee’s taxable income and therefore potentially they pay less tax.
Employees are able to package all sorts of items such as computers, superannuation and shares however, motor vehicles financed via a novated lease is the most popular form of salary packaging.
There are three main ways for employees to save money by salary packaging a motor vehicle via a novated lease as follows.
- Saving on the purchase price of the vehicle
- Saving due to the GST input tax credit on the purchase price of the vehicle
- Tax saving through salary sacrifice
MotorFleet’s focus is to assist employees to minimise the purchase price of the vehicle and to maximise the available tax benefits. We minimise purchase prices by negotiating additional discounts from the car manufactures and Dealerships on our client’s behalf. And we assist you to maximise the use of pre-tax dollars.
What is a novation agreement?
A novated agreement, when used in conjunction with a vehicle lease represents an agreement between three parties being the employee (lessee), the employer, the financier, then by attaching the novation agreement the following occurs.
- The employer takes over all the obligations of the lease except for the residual value which remains the obligation of the employee
- These obligations remain whilst the employee remains employed. During this period the employer makes all the lease payments to the financier and pays all running costs from the employee’s salary
- If employment is terminated, the novation agreement is rescinded (ceased) and only the lease agreement between the employee and the financier remains. When the employee leaves the employer they are required to take the vehicle with them
- A novation agreement is typically used in conjunction with a finance lease structure. This is mainly because most clients want to have the option to own the vehicle at lease end
- Novation Agreement can also be used with Contract Rental. This type of arrangement may be more suitable to clients who are paid car allowances or have short term requirements possibly due to contract work
- Generally the purpose of the novation arrangement is to allow the employee to take advantage of tax saving from salary packaging, as all lease payments are paid from gross (pre-tax) dollars
- Under a novation agreement most employers are entitled to input tax credit on the monthly lease payments and may elect to pass these on to the employee in the form of reduced salary sacrifice
- GST however is still payable on the residual value because the obligation of the residual value remains the responsibility of the employee
- If the vehicle is salary packaged then fringe benefits tax is also payable
Prior to entering into any financial commitment, MotorFleet recommends you seek independant qualified financial advice regarding your personal circumstances.
How does $100 cash sound for passing on a name?
Put simply, we’ll pay you (or your chosen charity) $100 per vehicle as a spotters fee.
All you have to do (with the potential buyers permission) is pass on the full name, phone number and email address to us… and if a deal eventuates, we’ll gladly pay the spotters fee to your nominated account.
You can nominate your own account, a family members account (say a child or grandchild) or a charity.