The Australian Taxation Office (ATO) allow any employer to offer salary packaging/sacrifice to any employee. Car Salary Packaging can only be offered under what the ATO call a Novated Lease. A Novated Lease is a simple three way agreement between the employee, the employer and a leasing company (financier).
Normally when an employee finances a car, the arrangement is just between the employee and the finance company. For any employee to gain a tax benefit the employer must be involved. Therefore a simple document called a “Novation Deed” is attached to the car finance (Lease), this makes the arrangement a Novated Lease. This tax effective arrangement simply says; whilst an employee works for the employer, the employer will pay the lease payments and car running costs from money deducted/sacrificed from the employees pre-tax salary. This reduces the amount of tax the employee pays.
Does the employee need to use the car for work purposes?
No. This arrangement is normally 100% private use.
How do the payments work and what are the benefits?
Employees who have normal car finance get paid a salary into a bank account after tax is taken out. With what is left over (take home pay) the employee pay the finance, and all of the running costs includes fuel, tyres, servicing, and the cars registration and insurance renewals. With a Novated Lease, the employer deducts an agreed amount from the employees pay before tax and uses this money to pay for the lease and all running costs. Because the employer is paying for these costs they claim the GST and pass this benefit directly on to the employee.
The major benefits are tax and convenience 1. The employee pays less income tax and benefit from the GST claimed by the employer. (Please refer to our article on GST benefits). 2. The employee never needs to worry about finding cash for big car expenses like insurance or registration renewals. All expenses are budgeted and covered, even the fuel is paid on a convenient fuel card that is billed back to the Salary Packaging company to pay.
Who’s name is the finance in?
The car finance (Lease) is always in the name of the employee and a quick application for approval is required with normal credit application processes applying. The lease is over a set term of between 1-5 years and has a residual value or ballon payment at the end.
At the end of the lease the employee has three options;
1. Payout the residual and own the car;
2. Trade the car in or sell privately and payout the residual (any money left over after the payout if the employees to keep tax free);
3. Re-lease the residual for a further term and keep saving tax.
What running costs are included?
You can include all vehicle running costs because the more you can pay before tax the more income tax and GST you will save. The tradition costs included are the lease, fuel, tyres, schedule services, re-registration and insurance renewals. The budget for the running costs can be changed at anytime during the package term. Vehicle Solutions provides an online link to the employees account to see exactly what is being deducted from the pay, what running costs are being paid and a running balance in the account.
Can a Novated Lease be transferred to another employer?
Yes. The deed with the current employer is broken, and a new deed is drawn up with the new employer and the same process continues.
What is FBT?
Please refer to our detailed article on FBT. Most employers allow employees to contribute to the vehicle running costs as part of the payroll deductions. This after tax deduction reduces any FBT to $0.
What is the process? & How fast can I get my car?
1. Finance pre-approval – 2 minute application – same day approval.
2. Find the car – It is worth spending time and effort on this part of the process to ensure you choose the right car for your needs and get the best price. We can assist with our unique and transparent car buying website .
3. We request a tax invoice from the dealership/seller. The information on the tax invoice allows us to complete the paperwork and the leasing company to claim the full GST on the car. (You only finance the GST exclusive price, eg. $50,000 car you only finance approx. $45,000. (same day if the car is in stock and available).
4. We do up the paperwork for you and your employer to sign. Both parties sign.(1 to 2 days depending on your employer).
5. We settle the finance and you pick up the car. Enjoy the drive and the tax savings.(Same day)
6. We establish the paperwork for the payroll deductions and send out your fuel cards and welcome pack.
The whole process can be complete in as little as two to three days depending on vehicle availability.
Where to start
Get a quote and understand the process. Vehicle Solutions provide a free online Novated Lease calculator that outlines exactly what your choice of vehicle will cost from your pay. At anytime you can call us on 1300990880 to ask as many questions as needed.