Explaining a Novated Lease in Simple Terms
Have you ever had the concept of a Novated Lease explained to you, and you were going along just fine understanding every word then suddenly you found yourself completely lost? It’s a deceptively simple topic, but if you’re coming into Australia from America to start a small business and you have never heard of novated leasing before, it can sound confusing. With lots of Melbourne companies using novated leasing instead of handing out company cars, it would be pretty handy to get a grip on how exactly this scheme works.
What it is
- First know that a novated lease comes as part of a salary package. If your employee is looking to get a new car, consider a novated lease as this has many benefits to you and your employee. In addition to getting a novated lease quote from this website, you can also speak to them about any discounts may be available.
Who is involved?
- The novated lease takes place between three parties. The employee, the employer, and the lease The employee chooses a car that he or she wants to drive, and the employer gets to do the exciting work of paying your monthly payments and taking care of the lease responsibilities. The payments, as well as the car’s operating costs, are coming out of the employee’s pre-tax income. Even though the lease obligations are being taken care of by the employer, the employee can use the car as they wish. It’s a lot like having just a regular new car.
- When payments are made from pre-tax dollars, the employee can sometimes get a tax break on the leased car. This is a great incentive for using the novated lease system instead of using a company car. Depending on the lease company, the lease payments can be calculated in a way that includes both pre- tax and post- tax income to avoid fringe benefit tax bills.
- Sometimes at the end of your lease, the employee may have a residual value to pay off. They can pay it and keep the chosen car or sell the car and make a little cash in the difference between the sale price of the car and the residual value.
New cars often
- Once the lease is over, and the employee decides he or she is not keeping the car, they can get a new one. They’ll never get bored with the vehicle they are driving. That doesn’t matter at all to the employer, but it is one aspect of the arrangement.
Add job, carry the car
- Lastly, if the employee decides to change jobs, the lease carries over from one employer to the next. This benefits the employee more than the employer, but it just shows that having a liquid movement of cars in the business is beneficial to both parties. Check 1ALP car finance for the best online deal, and remember, employers never have to obtain a full fleet of company cars when employees can take their leased cars to their next job.
A novated lease only gets complicated when you’re trying to understand the taxes of a different country. If you’re starting a business in Australia, it would be helpful to familiarize yourself with the different taxes, benefits, and terminology associated with the novated leasing scheme, otherwise, the rest is easy.