Novated leasing is a kind of motor vehicle leasing. In this, the finance company buys the motor vehicle. The person then needs to pay back to the finance company a certain amount. This could be either monthly or fortnightly. With each amount paid back, the total outstanding balance on the lease is reduced. The lease can be for any length of time – based on the person and the finance company. These time periods are between 1 – 5 years.

Once the lease term is over, the person can either purchase the motor vehicle for the residual value. Or else, the vehicle can be refinanced, or the person may just opt to sell it. In case the person makes a profit from the sale, then the profit is tax-free.

Novated leasing is popular in Melbourne as well as with employers from all over Australia and now in the USA and the UK too. In fact, when this is well maintained, the take home salary of the employee increases. This is because the payment from the lease is deducted from the salary before taxation, so the income tax decreases.

Another benefit is that the fuel, insurance, running costs, servicing as well as tyres are all included in this payment. So the employee does not have budget problems or the stress of busting the budget.

Employees like it as they also get to use and buy whichever model of car they need and not only purchase a new vehicle. They can also purchase an old one. Though at the end of the lease, the vehicle cannot be more than ten years old. The employees are able to upgrade at any time as there isn’t a lock in, and if the employer allows, they can even lease more than a single vehicle.

The employer pays the fringe benefits tax which is dependent on the price of the vehicle even though it is balanced in the novated lease agreement with the employee.

The employee gains as there is no GST since it is claimed by the employer. There are corporate discounts which help reduce the price which otherwise would be paid by the individual as well as leasing companies also get fleet discounts.

The employer innovated lease agreements agrees with the finance company that repayments can be taken out of the pre-tax salary. This helps the employer a great deal as when the employee leaves the organisation; the employer is not saddled with the financial commitment or the extra vehicle.

The results of novated car leases for the employer are that the employer agrees to the salary sacrifice agreement. To learn more regarding car finance visit this site. He or she also pays the finance supplier on behalf of the employee from the pretax salary earned by the employee.

As this is a fringe benefit, the employer pays a fringe benefit liability, and this has a nil dollar consequence for the employer in cases where post tax contributions are made. The expenses for the arrangement and maintenance of the lease are tax deductible for the employer when the lease is active.

At the end of the employment, the commitment for the repayment of the lease ends with the employer, and that is then reverted to the employee. GST credit can be claimed from the finance company as it is included in the lease charge. If you’re interested in car loans and would like to find out more, contact Car Finance 4 You.

Therefore, this is a win-win situation for employees and employers alike.