Novated Lease FAQ’s
What happens at the end of the lease term?
Novated leases will always have a residual payout figure or balloon due to ATO regulations. The tax benefits associated with novated leasing are significant enough without the ability to write off the full depreciation of the vehicle with pre-tax payments. So it’s fair enough that the ATO restrict the tax benefit to some extent. So what options do you have at the end of the term? You can:
• Payout the residual and take ownership of the vehicle
• Sell the vehicle and payout the residual
• Re-finance the residual amount either as a novated lease or Car Loan
• Include our hand back option which will allow you to hand back the vehicle at the end of the lease term
What if I use my vehicle for private use only?
Not a problem at all. That’s the beauty of novated leasing. You can use the vehicle entirely for private use and still receive massive income tax and GST savings on your ongoing finance and running expenses. The vehicle can be driven exclusively by your partner or children and you can still receive the same tax benefits.
What if I use the vehicle for business use?
Even better. Using your vehicle for business use may entitle you to an extra tax benefit. Depending on the price of your vehicle, how many kilometres you expect to travel per annum and your percentage of business, you may be eligible to set up your payroll deductions using the operating method instead of statutory. Keeping things simple, this basically means that a greater portion of the lease payment will be deducted from your salary pre-tax. You will need to keep a log book for 3 months in the first year to confirm your business use percentage.
What is FBT?
FBT (Fringe Benefit Tax) is a Federal Government Tax charged to an organisation for providing an employee with a fringe benefit. A novated lease is considered a fringe benefit and therefore there is an FBT component associated with most novated lease agreements. The good news is this liability can be alleviated within the payroll deductions from the employee’s salary. We set up all of our novated leases using the employee contribution method. This enables the employer to deduct a portion of the lease payment from the employee’s salary post-tax to offset the FBT liability. This post tax deduction is a portion of the lease payment, not an FBT charge. After the employer claims a portion of the lease associated GST as an input tax credit, the remainder of the lease payment will be deducted from the employee’s pre-tax salary.
Another great benefit associated with novated leasing is the GST saving on the vehicle purchase price. As the financier is essentially leasing the vehicle to the employee, they are entitled to claim back the GST related to the vehicle price.
How do you calculate maintenance costs?
Your fuel, servicing and tyre budgets are calculated based on the following parameters:
• Your estimated km’s travelled per annum
• The type of vehicle i.e. European vs Japanese, fuel economy, estimated km’s travelled per annum
Your registration costs will vary depending on the type of vehicle and relevant state government charges. Your insurance premium will vary depending on your age, driving history, vehicle location, etc. These figures are estimated expense budgets and will accrue in an expense account that we manage for you. If your situation changes we can amend your budgets accordingly.
Can I choose my own comprehensive insurer?
Yes you can choose your own comprehensive insurance provider. We can offer competitive insurance premiums through a range of providers, however you will maintain the ability to use a preferred insurer.
Does it have to be a new vehicle?
The vehicle doesn’t have to be brand new. We can provide novated leases for vehicles up to 12 years old at the end of the lease term. 2nd hand vehicles from a dealer or private vendor won’t be a problem, you will however need to source the vehicle yourself. If it’s a new vehicle that you’re after, we can source fleet pricing through our dealer network and obtain the very best pricing in the market.