– By Caroline Falls –
Almost anyone who is earning an income of more than $25,000 a year and paying tax can benefit from a novated lease arrangement with their employer, or their own established company.
Some novated lease providers say that the popularity of the arrangement has burgeoned in recent years because of the uptake by employers offering it to their employees as a way of salary packaging to attract and retain the best people. Others said that employee-initiated contact is driving their business growth.
One thing they all agree on is that almost everyone can save money with a novated lease. Apart from the condition that the beneficiary is earning a taxable income, the other one is of course that the employee needs, or wants, a car. Since April 2014, the new fringe benefit tax rules have meant that even low-kilometre drivers will benefit.
A google search for “novated lease Australia” will bring up several provider websites. Many featuring charts highlighting the financial benefits of a novated lease compared with a traditional purchase (a person buying from the showroom and paying for it out of their after-tax salary).
In an example on the website of novated lease provider ORIX, an employee on a gross salary of $130,000 a year signing up for a novated lease using the statutory method of calculating FBT would make an annual saving of $3,096.04 on the purchase of a $43,627 car, compared with buying it the traditional way. They would save even more ($4913) using the so-called employee contribution method, by paying about 20 percent of the vehicle purchase price out of their after-tax earnings.
There are many variations to take into account, including lease length, annual kilometres travelled and choice of vehicle, which can be the car an employee already owns, a brand new car, a used car or a demonstrator model.
When buying a used vehicle it is recommended that the purchase is done through a certified and reputable licensed motor vehicle dealer. Purchases through private sales treaty have other risks and the financier is unable to claim GST input tax credits.
To help potential customers appreciate the financial benefits many providers have incorporated novated lease calculators on their websites.
There are other key details an employee needs to be aware of when taking a novated lease. They should know what fees and brokerage are being charged by the lease provider. They should be disclosed and not disguised in the amount finance or in the interest rate. In particular, any early termination fees should be explained clearly. Another critical consideration is to check if any insurances offered are necessary.
Importantly, the employee should monitor their pay deductions and make sure that they are commenced on delivery of the vehicle; ensure their vehicle is always registered and insured and that the budgets nominated in the agreement align with actual usage.
Besides the savings, having all your vehicle expenses combined into one monthly payment will simplify the task of running a vehicle. And that’s certainly a benefit worth investigating.
