The Advantages of A Novated Lease

When you need a car, but you cannot afford to buy one, you might consider vehicle lease. In recent years, novated leases have become very popular in Australia, because they offer benefits to both employees and employers. But, what is novated lease, what are its advantages? Keep on reading to find out more about it!

In general, novated lease is a way to finance a motor vehicle; it is a formal three-party agreement between a finance company, employer and his employee where you can lease a used or new car. The employer takes on financial responsibility for the lease and makes payments on behalf of their employees, deducting them from the pre-tax income of the employee. When it comes to terms of the arrangement, they may vary slightly. A split novated lease obligates the employee to guarantee the value of the vehicle once the lease is up, while a full novated lease dictates that a company makes payments and guarantees the residual value of the vehicle for the term of the lease. By far, Australia leads the way in terms of popularity of this form of lease.

A novated lease is an effective way to incorporate a vehicle in a salary package of an employee. Simply put, an employee secures the lease, but their employer is one to make the payments out of employee’s salary through a novation arrangement. An employer, on the other hand, takes the vehicle maintenance costs and payments from their employee’s pre-tax salary and that significantly cuts the taxable salary of the employee. As a consequence, the amount of income tax an employer pays is lower.

This form of lease offers the employee more options while selecting the vehicle. When the term ends, the employee has two options; to pay out the current lease and start with a new agreement or to own the car. Since the employee is the one owning the vehicle and having the lease in their name, they are in control of the maintenance and care and, of course, can use their vehicle anytime they want.

For the company, a novated lease provides a cost-effective, yet simple method to add value to their employees’ salary packages, which is important for staff retention and recruitment. In addition, if the employee leaves the company, the novated lease instantly becomes a two-party arrangement between the finance company and the employee. So, employers don’t have to deal with managing and disposing of lease vehicle their former employees might leave behind.

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