Novated Lease

This type of financing is used primarily for salary packaging purposes and generally applies to goods such as motor vehicles, but can also apply to business items such as computers.
A Novated Lease is fundamentally the same as a normal finance Lease. It is altered by a “Deed of Novation” whereby a third party (the employer) enters into an agreement to make repayments of behalf of the Lessee (the employee).

For example, an employee enters into a Lease for a new motor vehicle. While the Lease is in the employees name, the employer undertakes (by way of the Deed of Novation) to pay the monthly installments on the employee’s behalf, usually out of the employees pre-tax earnings.

It should be understood that even though the employer undertakes to make repayments, the employee must qualify for the Lease in their own right, and the employee is ultimately responsible and liable for all installments and the Residual value.
Employee Benefits:

Choice of  Vehicle

the employee can choose their preferred type of vehicle, rather than being assigned a "company car"

Control of Vehicle

The employee is responsible for managing their vehicle (e.g. maintenance, repairs,Registration)

Portability

When the employee leaves the employer, they take their vehicle, which may be Novated to another employer

Equity

Since the Lease is in the employee’s name, any equity that is built up in the vehicle over the duration of the Lease, is retained by the employee

Tax Effectiveness

Since the Lease is packaged, payments are made out of pre-tax salary. Income Tax is therefore charged on the remaining (reduced) gross salary.

Employer Benefits:
“Off Balance Sheet” Finance
Since the Lease is in the individual (employee’s)
name, no related assets or liability is reflected on the employers Balance Sheet
No Ongoing Lease
Liability
The Lease liability ultimately rests with the employee. If employment is terminated (for whatever reason) the employee is liable for Lease payments

No Residual risk

The employee is responsible for the Residual value
No excess vehicles
When the employee leaves the company, they take their vehicle and the Lease with them

Reduces
Administration:

The employee is responsible for managing and financing their own vehicle
Reduced On-Costs
Recurring expenses such as Payroll Tax, Work Cover and the like are reduced, when a vehicle is packaged into an employee’s salary

Provides Competitive
Remuneration

Employers can structure tax effective salary packages for employees

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