Amongst the range of business car finance products available, Novated Car Lease with Salary Sacrificing is possibly one of the least understood. It could be the use of the term ‘sacrifice’ that puts many off from even investigating this type of finance. To clear up any misunderstandings we clarify exactly what is sacrificed and how Novated Car Lease can present attractive tax and other benefits.
When purchasing vehicles for use in their business, business owners have a number of finance products from which to choose to finance the vehicle. These include Lease, Chattel Mortgage and Commercial Hire Purchase. These are suited when the business is acquiring the vehicles as sole owner and will own and operate the vehicles themselves.
But when the business provides a vehicle for use by an employee, there are options in how the vehicle can be financed. If the business is simply providing the employee with a ‘company car’ then the business typically purchases and owns the vehicle and the employee has use of the vehicle when carrying out their job. The employer and employee usually come to an arrangement around private use of the vehicle. When the employee leaves that company, they hand back the keys of the car to the company. This type of arrangement can attract Fringe Benefits Tax (FBT).
Novated Car Lease with Salary Sacrifice is a form of finance for purchasing vehicles where employer and employee are both involved. The key difference between a company car and a vehicle purchased with Novated Car Lease is that the employee is paying towards the purchase of the vehicle and can end up owning the vehicle.
Novated Car Lease Features and Benefits
A Novated Car Lease with Salary Sacrifice is a multi-person decision as this is a 3-way finance arrangements with the lender, the employer and the employee all involved. The idea may be initiated by the employee and presented to the employer or the employer may offer it to the employee as part of their salary package. With the current issues around labour shortages in some industries, this could be utilised by companies as an incentive to attract talent.
- The lease on the vehicle is novated or transferred from employee to employer.
- The employer meets the monthly lease payments and typically will cover the ongoing running costs of the vehicle.
- The employer receives the tax benefits associated with leasing a vehicle. With motor vehicle leasing that includes the monthly lease payments being tax deductible and claiming the GST on those payments. GST is not charged on the interest portion of the repayments.
So that’s what’s in the deal for the company, what’s in it for the employee you ask?
The Sacrifice
The employee benefits from a Novated Car Lease in a number of ways but they must decide to sacrifice a portion of their salary. While described as a ‘sacrifice’ it could be seen less as a loss and more of a foregoing.
The employee decides to sacrifice or forego a portion of their salary to go towards the vehicle payments. The employer deducts that money from the weekly or monthly wages of the employee and uses that money to meet the car repayments and expenses.
The tax benefit for the employee lies in the fact that the salary deducted or sacrificed is done on pre-tax income. So the employee has a lower taxable income. Depending on the amount of the sacrifice which is dependent on the price of the vehicle and leasing deal, the scenario may place the employee in a lower tax bracket.
The other benefit for the employee is that they can end up owning the motor vehicle when all the payments including any residual amount are finalised. So they sacrifice the cash wages in order to pay less tax and end up with a motor vehicle.
For employees considering whether or not this could be a suitable way for them to acquire a motor vehicle there is the element of interest rates on car loans to factor in. The interest rates offered on business vehicle finance are typically lower than for personal secured car loans. So the loan repayments on a Novated Car Lease would typically be lower than repayments on a secured car loan. So the employee could actually be paying less to buy their car.
To see how this may play out for the vehicle you are considering, use our Business Car Finance Calculator.
Of course there are other matters for employees to consider, especially how long they intend to stay with that company. Lease terms can be say 5-6 years. If the employee decides to leave that job and company before the car lease is finalised, they will need to make arrangements with the employer and lender to finalise the finance in order to take full ownership of the vehicle.
Compared with being offered a company car which can often come with a dip in salary being offered, the salary sacrifice of a Novated Car Lease can be quite an attractive option. In addition, the employee gets the chance to select the vehicle that they want. A choice which is not usually available with company cars.
Sourcing Novated Car Lease
As we noted above, Novated Car Lease involves lender, employer, and employee which may sound like something which could complicate the finance process. But there is no need to worry about that. Once the agreement between employee and employer is in place, your Jade Car Loans consultant will handle the entire process for you, including assisting with no doc car loans Australia. Sourcing quotes, assisting with applications, liaising with the lender, and assisting with the settlement phase.
While Novated Car Lease with Salary Sacrifice may not suit all businesses and all employees, for some it is a very attractive proposition.
To discuss the details and possibilities of a Novated Car Lease with Salary Sacrifice contact Jade Car Loans 1300 000 003
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.
