What is a Novated Lease?
Changes by the Deferal Government mean that only for employees who use the car for work purposes, a novated lease could be an alternative way of financing a car for individuals that are employed by companies. An employer can offer salary packaging to their employees to do salary sacrificing for purchasing vehicles. The employer then pays the lease rent on your behalf from your pre-taxable income for the term of the lease. This can be a good option for employees, because in turn, this reduces their taxable income and they pay less income tax.
At the end of the lease the residual value needs to be paid to the financial institution. If the car is worth less or more than the residual value, the employee needs to wear the profit or loss.
Benefits of Novated Leases
- Reduces taxable income in turn employees pay less income tax
- Flexible terms from 1 to 5 years
- Fixed rates so you know exactly how much your repayments will be
- Costs are known which makes for easier planning