Slow wages growth has been a hot topic in political debates for some time. While some industries are struggling to fill job vacancies and suffering labour shortages, there are reports of higher wages being offered in some sectors. But for many others, a pay rise may not be on the horizon. For employers still struggling to recover from the pandemic downturn, offering pay rises may not be viable at the moment. Novated Car Lease with Salary Sacrificing is a finance product where employees can acquire a car, potentially pay less tax and employers realise tax benefits.
The name ‘novated’ may sound complex and frighten some people off. But don’t worry, it is really quite a straightforward concept and widely used. Novated Car Lease with Salary Sacrifice is a motor vehicle finance product which involves an employee, their employer and the lender. The employer makes the lease payments and the employee sacrifices part of their wages to cover those expenses.
When all payments are made on the lease, the ownership in title is transferred to the employee.
We are specialists in business vehicle finance and will handle both sourcing the best offer and structuring the finance to best suit all parties. We provide this simple explainer with the basics of Novated Car Lease with Salary Sacrifice works so those interested may consider if this an attractive form of motor vehicle finance for their requirements.
The main objective of a pay rise from the employee perspective is usually to achieve more each week in their pay packet. But often an actual increase in the gross wages can mean a move to higher tax bracket. And while yes, there will be more net wages there is also more tax payable.
By sacrificing part of gross wages towards the finance repayments with a Novated Car Lease with Salary Sacrifice it may mean moving to a lower tax bracket and hence less tax is payable. In some cases that can mean relatively more dollars each week. In addition, the employee is moving towards car ownership.
The alternative scenario is for employees to purchase a new car on their own with a Secured Car Loan which does not usually represent any tax deduction to the individual. Any use of a private vehicle for business purposes would require a compensation for mileage to be arranged between employee and employer.
From the employer perspective, the prospect of providing an employee with a fully-funded company vehicle may not be viable or appropriate for their role. A company vehicle may not be of significant benefit to the employee for their out-of-hours requirements. FBT may also be applicable where company cars are used by employees for private use.
Novated Car Lease: How it works
Any confusion or reticence to pursue a Novated Lease with Salary Sacrifice may derive from the name – novated. In the financial sector there are some technical terms which are not readily used in normal conversation. Novated is a term which means ‘replace’. In this instance, the buyer being the employee is replaced by their employer in the motor vehicle finance agreement.
As this finance arrangement involves both the employee and employer, clearly both parties will need to agree. But, in general terms, the employee can choose the vehicle that they wish to purchase. Though the price or threshold may need to meet employer approval and any other applicable ATO guidelines.
From the time of purchase and settlement of the lease agreement, the employee has full use of the vehicle.
The employer takes on the vehicle lease and pays the relevant costs of the finance payments and other expenses on the vehicle.
The employee gives up or sacrifices that amount from their salary to cover the payments. So the employer deducts the relevant amount from the employee’s wages for the lease payments and other costs.
The amount sacrificed from salary is deducted from gross wages which may move the employee into a lower tax bracket. If so, a reduction on total tax payable may be realised.
In making the lease payments and the expenses involved in maintaining the vehicle, the employer receives the relevant tax deductions.
At the end of the lease term the residual needs to be finalised. At that point, when the finance is finalised with all required payments made, the employee takes full ownership of the vehicle.
Securing a Cost-effective Novated Car Lease
While both employee and employer stand to receive benefits from this type of finance arrangement, both parties will still be seeking the cheapest interest rate possible. Your Jade consultant will handle sourcing the best offer and negotiating with our lenders to structure a lease which best meets the requirements of both employee and employer.
Contact Jade Car Loans on 1300 000 003 for a more in-depth discussion of Novated Car Lease with Salary Sacrifice and how it may suit your objectives.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.