Novated leasing is a salary packaging offer increasingly being offered by employers. It is popular with employees because they get to select the car they want and they get it cheaper thanks to legitimate tax deductions. Employers value it because it helps them attract and retain talented, valuable employees.
Essentially, novated leasing is a three-way arrangement where an employer agrees to pay the employee’s vehicle finance and running costs to a leasing provider from the employee’s pre-and post-tax salary. To be more precise, the three parties sign a deed of novation, under which the employer takes on all, or some, of the employee’s obligations in their separate lease agreement with a finance company.
Novated lease providers say that almost everyone who has a taxable income can benefit from getting their car through this arrangement.
Under the arrangement, the deed of novation also guarantees a residual value of the vehicle at the end of the agreement. This allows the employee to take over ownership, and any future maintenance and other obligations, of the vehicle.
Often an employer has an arrangement with one novated leasing provider, of which there are many, including Custom Fleet, Toyota Fleet Management and ORIX.
The lease provider’s purchasing power enables it to obtain bigger discounts than a sole purchaser could on the sale price of the vehicle. And because of the lease arrangement the GST is not included in the amount financed which reduces the overall cost.
This buying power also extends to competitive pricing on vehicle servicing, maintenance and consumables such as tyres. In addition, most novated leasing packages come with a fuel buying card that gives the user access to discounted petrol or diesel prices.
Interest rates on finance vary from provider to provider and this is one detail that the employee, or driver, should look at carefully. In the current market, rates of between six percent and eight percent are considered fair.
While, the driver, can enjoy the convenience of cashless motoring with a novated lease, they may still choose to, or need to pay cash for their fuel and maintenance. This could be because they find they can get better fuel or maintenance pricing elsewhere, or because they are in a location that doesn’t accept their fuel card.
In this case, leaseholders can make claims for reimbursement of cash expenses from their lease provider. For example, Toyota Fleet Management has an app for making such cash claims. And, many novated leasing providers have online claim forms.
Another detail that is worth studying in the fine print of the lease document is the monthly management fee the leasing company is charging.
The novated lease agreement will also contain a budgeted amount for fuel, maintenance and tyres. The driver needs to consider these figures carefully to see that they reflect estimated real driving conditions. Otherwise a ‘top up’ may be required during lease term which will increase the monthly rental.
It may still seem confusing but the leasing providers can help guide you through the process so you understand all the benefits. And before signing anything, you should seek your own financial advice to ensure it suits your current financial situation.
