With wages growth continuing to be sluggish, businesses need to look to incentives to attract and retain quality workers. With no wage increase on the horizon, employees are looking for other measures to improve their real income. Novated Car Leasing with Salary Sacrificing packages provided by Jade, offer attractive benefits to both employers and employees and may be a workable solution for you.
Novated Car Leasing is one of the finance products that we offer to our customers as part of our portfolio of loan options. This type of car financing is structured to suit employers who want to provide a full-maintained motor vehicle for one of their employees to utilise in carrying out their work with the company. But they want the vehicle to be part of the employee’s salary package rather than an added extra.
On the employee side, a Novated Car Lease can be utilised to reduce taxable income and thus deliver an income benefit in addition to having the use of the car. Both parties need to concur on the agreement to include the purchase costs and ongoing expenses of the vehicle in the employee’s salary package.
It is in the interests of both parties to source the cheapest Novated Lease deal and our Jade consultants work with businesses to structure a package at the lowest car loans interest rates.
Novated Lease: Explainer
It is important for both employer and employee to understand the details of a Novated Car Lease and the benefits they will enjoy. By definition, novation means that one obligation is replaced with another obligation. In other words, one party to an agreement, arrangement, commitment or deal, is replaced with another party.
Novated Car Lease actually involves 3 parties to the financial contract: the employer, employee and the lender. The employee is the first party and they ‘novate’ the lease to the employer who takes on the financial commitment. The employer replaces the employee.
The Salary Sacrificing component involves the employee sacrificing a portion of the pre-tax wages in return for having a vehicle provided by the employer.
Features of a Novated Car Lease
Your Jade car finance broker will work with all parties to structure a Novated Car Lease that meets the objectives of both the business and the employees and negotiate the best interest rate and terms with the lender.
- Most banks and lenders offer Novated Leases so your Jade consultant has a wide selection from which to source you the best lease deal.
- All Jade Novated Leases are structured on the basis of our signature cheap interest rates.
- The vehicle itself is selected by the employee and they can handle negotiations with the seller.
- Novated Leasing with Salary Sacrificing is only available for the purchase of consumer vehicles, not commercial trucks etc.
- Novated Car Leases can be utilised for new or used cars, purchased through a dealer, a private seller or at auction.
- In most cases, the employer will then take over and handle the financial aspects of the loan process in consultation with their Jade consultant.
- The employee is novating the lease contract to the employer.
- Once Jade finalises the lease arrangements, the employer takes responsibility for the vehicle expenses: lease payment, registration, insurance, petrol, service and other costs.
- The vehicle expenses are deducted from the pre-tax income of the employee.
- The employee has full use of the motor vehicle, which must primarily be used for their work purposes. A level of private use of the vehicle is permitted, subject to FBT and ATO rulings.
- By sacrificing that portion of their income, the employee will likely move into a lower tax bracket and their tax payable is reduced.
- The employer pays the monthly lease payments which are fixed for the term of the lease.
- Depending on the purchase price of the vehicle, terms for this type of lease can range from 12 months to up to 60 months.
- A residual is an option with Novated Leases and the amount is determined by ATO guidelines.
- The employer claims the GST on the lease payments and the residual and accounts for any FBT which may apply.
- Lease payments are tax deductible for the employer business, subject to ATO guidelines.
- At the end of the lease term, the employer finalises the residual and the ownership of the vehicle is returned to the employee, unencumbered.
- Should the employee leave their employ of that business before the lease is finalised, they will need to come to an agreement with the employer and the lender re the lease.
There are clear benefits for all parties and for employers looking to attract high quality staff in times of low wages growth, this may be an incentive to consider. Deciding whether this is the right finance product for your business, should be made in consultation with your accountant.
Arranging a Novated Car Lease
If you are an employee interested in a Novated Lease, you should first raise the matter with your employer to ensure they are in agreement. Employer businesses can then discuss the details and arrange the lease deal through their Jade Finance consultant, who will streamline the entire process.
If a Novated Car Lease is of interest to you, please call a Jade consultant for a confidential, non-obligation discussion and to answer any queries you may have about the details.