The answer to this depends on who you work for. To explain this how this effects an employee you need to understand the differences between the effects on a private sector employer and a government employer.
Private Sector Employer
For employees in private sector employment the simple answer is no. A Novated Lease works by maximising the tax savings the employer can claim through the lease. However when an employee tries to purchase a vehicle over the ATO allowable luxury limit of $57,581 (2017/18) on a Novated Lease will create an issue within the tax system. This issue can be explained simply with the following process;
- Employee chooses vehicle and Novated Lease
- Employer establishes payroll deductions from employees salary.
- Employer uses this money from the deductions to pay for the Novated Lease.
- Employer claims the GST on the Novated Lease payments. (ATO regulation states that a business can only claim vehicle expenses on a vehicle below the luxury limit.)
- The Novated Lease on a luxury vehicle is automatically broken and reverts to a company loan, which means that the business can only claim the interest and depreciation on the vehicle and must make an adjustment to the company tax that is payable. This can work out beneficial in the first year when interest and depreciation claims are high, however, in following years this claim is reduced and becomes a cost on the company which is passed on to the employee.
Put simply because the government don’t pay company tax, but do pay and claim GST. This means that there is no trigger or need for the Government to adjust the company tax they pay. This means all government employees can do Novated Leases on luxury vehicles without any penalty.
For more information and to see how much you can save by doing a Novated Lease please try our online calculator, it is very accurate, takes 30 seconds to use, and we never require your personal details to get a quote. Getting a second quote has helped hundreds of SA Government employees save thousands.