Novated Lease Explained. What is a Novated Lease?

Novated simply means that an obligation has been replaced. In the case of a lease, it means that the obligation to pay the lease has been taken over by another party. So therefore a Novated Lease explained is one in which another party agrees to make the payments on your behalf. When looked at in the context of salary packaging a car for your own use, a Novated Lease is a three way agreement between an Employee, an Employer and a Financier. The employer agrees to make payments for the lease to the financier with money that the employee agrees to salary sacrifice. For the employee, they get the benefit of accessing before tax dollars that they may not have had any other way of accessing, especially if they only use the car for private use. The employers benefit is that they can offer their staff an extra benefit and more money, without incurring any additional costs to there business. Novated leasing is almost a nil cost to an employer as all costs involved are ultimately carried by the employee. To maximize the benefit of a Novated Lease, many people also incorporate the running costs of the car in to their lease. All the running costs (Fuel, Registration, Insurance, Servicing) need to be managed. A Novated lease may be managed in a number of ways. Some employers are willing to manage the funds for their employees. This can be time consuming having to keep all the records and handle the funds for them. Therefore many employers enlist the services of a fleet management company to look after the running of the Novated Lease. Now the employer simply has to pass the withheld monies onto the fleet management company to deal with. The fleet management company will also report of the running costs of the car and any Fringe Benefits Tax issues. A Novated Lease may be taken advantage of by people using their car for both business and private use, with those that use their car for business give extra consideration when it comes to Fringe Benefits Tax. Business usage lowers how the Fringe Benefits Tax is calculated, as the salary sacrifice is not a fringe benefit if it is for business use. Although the private usage can attract the Fringe Benefits Tax, there are methods to offset this so you do not have to pay it. Although Novated Leasing can be a good way to finance your next car purchase, it is always best to speak to a professional, as everyone’s situation is different. And what works for one person doesn’t always work for the next. A company like Cameron Scott Financial Services can handle all your Novated Lease requirements from supplying finance only through to a Full Maintained Novated Lease.