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May 30, 2014

Are There Any Benefits Other Than Tax Benefits for Novated Lease?

Salaried individuals in Australia can opt for Novated car leases subject to their employer allowing it and their own financial eligibility. This type of agreement is signed three ways – by the employee, employer and leasing company. The employee leases the car from the leasing company and novates the responsibility of the lease to their employer while they are employed there. In turn, the employer makes the repayments on the employee’s behalf from their pre-tax income. Thus, the employee can show lower taxable income and save on tax while driving the car they want.

Employees are often faced with the question of whether they should opt for Novated leases.There is the key advantage of tax benefits already discussed above, However, there are other advantages –too:

  1. Flexibility in selection – The employee chooses the make and model of the vehicle. It could be anything from a family sedan or a second-hand car (within certain limits) , so long as they can afford the lease repayments on the vehicle.
  2. GST savings – Goods and Services Tax is applied on vehicle purchase in Australia. However in case of Novated leases, the employee’s monthly payments are calculated net of the GST amount. This provides a further 10% saving to employees if passed on by employers.
  3. Flexibility at time of job change – In case employees decide to switch jobs, they get the option to transfer the outstanding lease amount to their new employers ( so long as the new employers offer Novated leases).
  4. All-round cost savings – The Novated lease payment should also include the operating costs of running the vehicle, such as fuel, maintenance, insurance and repairs that are also paid using pre-tax income.  
  5. Benefit to employers – Employers get the freedom to raise employees’ package without adding to their Cost to Company (CTC).

These benefits should make it easier for employees to choose Novated lease as a part of their salary fitment. 

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