The novated lease facility can be an affordable tax-effective way to purchase a new vehicle or the second family vehicle which you always wanted to be used for work or whenever.
A novated lease is an arrangement between You as the Employee, Your Employer, and the Lender. This novated lease arrangement you enter into is a Deed Of Novation (tripartite agreement) between all 3 parties.
This novated lease arrangement will assist with the purchase of the vehicle at competitive lenders rates and the repayments on the vehicle include all the running costs (view running cost list below) which are deducted through your employer as a ‘Salary Sacrifice’ payment. A Novated lease comes in 2 variances, either a lease on just the vehicle or the vehicle plus all the associated expenses and running costs.
An agreed dollar amount is paid to the lender from your pre-tax salary, (income you earn, that has not been taxed) to minimise your taxable income, with more take-home pay. A saving for you on the overall tax paid.
A saving for you on the overall tax paid, which means, Your take-home salary are increased.
How Does A Novated Lease Work?
At the time of purchase, inform the motor vehicle dealer you are purchasing the vehicle via a Novated Lease, therefore the dealer understands this purchase process to structure the purchase invoice since NO GST is paid on the purchase price. The Lender owns the vehicle and the invoice leased will be in your own name. This type of facility is classed as a secured loan as the loan is secured over the vehicle.
Once you purchase the vehicle and the loan is setup, your employer makes payments as a payroll deduction to the Novated lease party, (Government Employee’s payment are managed by RemServ, or Smart Salary group), the agreed lease repayments which include the vehicle running costs using the pre-tax income from your salary packaging account. The Novated Lease group then pay the lenders repayments & other vendors as part of the agreement.
By paying the agreed repayments before getting taxed on your income, you reduce your taxable income, which effectively may reduce your tax which should put more money in your pocket.
What Can I Include In A Novated Lease Repayment?
Within the novated lease repayments, you can include the following at the time of purchase
+ Vehicle Registration,
+ Insurance, Petrol,
+ Servicing and Repairs,
+ Window Tinting,
+ Internal Upholstery & External Paint Protection,
+ Accessories, i.e. Bike Racks, Tow Bar, Roof Racks, Bull Bars, 4 Wheel Drive Kits & Snorkel, etc.
+ Even the Car Wash and Detailing Services.
+ For Government Employees, visit the Remserv or SmartSalary websites for further details
What are the benefits on a Novated Lease?
The benefits of a novated lease are many, for example;
- Number 1, THE TAX SAVINGS. Tax-effective way to save tax on a new, used or even on your existing vehicle.
- To choose to purchase a new car whereas before you would have to have saved up thousand as a deposit to buy the vehicle of your choice.
- NO GST TO PAY. Save the GST on the purchase price. Depending on the price of the vehicle, the GST is a bonus, which is an immediate saving to you.
- A convenient way to make one repayment to include all the running costs on the vehicle.
- A well-maintained vehicle will add value at the time of Trade-In for the next vehicle purchase.
What is a Residual Value?
A residual value or balloon amount is an agreed percentage or dollar amount value of the originally financed purchase figure which is paid out at the end of the lease term if you plan to own your vehicle outright at the end of the agreed term however, you can also refinance the residual value or balloon for another agreed term or sell the vehicle to lease another vehicle of your choice.
The residual value percentages are set by the Australian Tax Office (ATO), based on the lease term of 24 to a 60-month term of length of the lease. In the FAQ list below, we list these percentages per term as set out by the ATO.
Novated Lease Info ~ Knowledge is Power
How long is the finance process to an Approval?
The finance approval is very quick and the application process can be completed in a matter of days.
Can I choose my own vehicle?
Choosing your own car should not be limited to any vehicle make or model. Liaise with your employer who would have a list of the non-suitable vehicle, however, you should be free to choose the vehicle you wish to drive. The only limitations would be the lender limitations, as to the age of the dollar value of the vehicle to ensure you are able to afford the repayments, the age of the vehicle at the time of lease expiry not more than seven years old.
What income is enough to benefit from a Novated Lease?
Affordability is the main criteria with any lender.
Will you be able to afford the type of car you wish to purchase?
We will run through a borrowing capacity information collection to determine your affordable novated lease repayments based on your assets and liabilities.
You may be happily surprised that a monthly novated lease repayment may be able to put you behind the wheel of a vehicle you have always dreamed about.
What is the difference between a Novated Lease & a Vehicle Loan?
As we mentioned earlier the benefits of a novated lease, the first would be the saving of paying less TAX;
Purchasing a vehicle with a normal vehicle loan or personal loan you would be making the lease repayments from after taxed income (Income you have paid tax on) were with a novated lease you would make repayments on Pre-Taxed income. (Income before you paid any Tax).
Pay No GST
You can save 10% on the cost of a new vehicle purchase where as a normal car lease or personal loan you would have to pay the 10% GST.
With some personal loans or vehicle leases, you may be required to pay a deposit, as with a novated lease a deposit is not a requirement.
No Budgets or Payment Reminder to Calculate
A novated lease is made up of one payment to cover all the vehicle expenses as for a personal loan or normal vehicle lease which only covers the lenders’ loan repayment per month, which you would need to budget for all the vehicle run costs by yourself.
How are the Balloon or Residual Value amounts calculated?
Neomoney uses the ATO IT 28 residual value assessing percentages listed below:
|Lease Term:||12 Months||24 Months||36 Months||48 Months||60 Months|
Can I contribute my own funds to reduce the Novated Lease repayments?
The Novated Lease product doest not allow for a deposit or cash contribution. Any deposits paid to the dealer to secure the vehicle purchase will be refunded by the motor vehicle dealer at the time of settlement.
Can I register the vehicle in my own name?
The motor vehicle will be registered in the Lessee’s Name which is You, not the lender. Any additional driver of the vehicle will need to be indicated on the insurance policy.
What do I do at the end of the Novated Lease period?
Based on the number of years chosen for your Novated Lease term, from 1 to 5 years (12 months to 60 months) we will notify you as should the Novated Lease group who makes the loan repayments for you, to advise you of the available options for you to consider;
- Trade in the vehicle to upgrade to a newer vehicle.
- Retain the vehicle to pay out the residual value remaining.
- Retain the vehicle to refinance the residual value.
- To refinance the vehicle with another lender.
- You may wish to sell the vehicle & pay out any balance owner
When the time comes to upgrade, refinance or retain the vehicle, some costs & conditions may be incurred.
How many kilometers should I driver on a Novated lease?
No need to worry about the required kilometers to qualify for a Novated Lease.
In the past, you would have been required to have driven 50,000 kilometers per year to qualify for a Novated Lease. The Novated lease legislation has changed so you can drive normally, no need to travel a further distance to increase the kilometers on your vehicle to met the Novated Lease policy.
What is Fringe Benefits Tax (FBT)?
Fringe benefits tax (FBT) is a tax employer pay on certain benefits they provide to their employees, including their employees’ family or other associates. The benefit may be in addition to, or part of, their salary or wages package.
If you are a Director of a company or trust, benefits you receive may be subject to FBT.
Fringe benefits tax is separate to income tax and is calculated on the taxable value of the fringe benefits provided.
The current FBT rate is 49%.
The FBT year runs from 1 April to 31 March.
A novated lease is a benefit outside your cash salary or wages – so it is subject to FBT.