Novated leases are a particular kind of lease contract which are popular mainly in Australia. Novated leases are a three-way contract between an employee an employer and a vehicle financier, which enables the employee to lease a vehicle from the financier, with the employer agreeing to pay all expenses relating to the vehicle, which are then subsequently deducted from the employee’s salary. It allows employees to have their choice of car, and the pre-tax deduction also means a decrease in taxable income, which in turn can be a boost for disposable income after tax deductions. In Australia, novated leases have proven to be quite popular, and future projections are mostly in favor of it gaining further popularity as time passes. The future seems bright for novated leases in Australia because of the many benefits it provides for all parties, including –
- Significant tax savings for the employee.
- Individuals can take advantage of the purchasing power of their leasing company on the initial sale price
- Ongoing fleet management costs (tyres, servicing fuel etc) should be at fleet discount pricing.
- A greater range of vehicles to choose from in terms of make, model and price points than would be possible with company cars.
- The ability to keep the vehicle lease intact and transfer it to a new employer in case of a change in employment.
- A great way to function without investing heavily in a company fleet of vehicles for the employer.
- An effective way to offer more net salary to employees without incurring company costs, due to the significant reduction in taxable income.
- Non-accountability for the employer in case of any risk or damage to the vehicles, which are the responsibility of the employees.