Why Salary Package?
The design of an effective salary package, which often includes a car, can have attractive tax and accounting benefits for both employer and employee. As an employee, you may find that a Novated Lease is the best way to include the vehicle of your choice in your company package, helping you realise more from your salary and the car you drive.
- What is a Novated Lease?
- How does it work?
- Types of Novated Lease
- Novated Lease (Fully Maintained)
- Novated Lease (Non-Maintained)
- Benefits of a Novated Lease
- For the Employee
- For the Employer
A Novated Lease provides a flexible, portable and convenient way to acquire a motor vehicle as part of an employee’s salary package.
Employees lease a motor vehicle of their choice and while they remain employed, their employer agrees to pay the rentals and other running costs (if applicable) directly from the employee's gross salary.
Retain your talented employees by offering them the benefits of the bigger companies. The Novated Lease is a simple solution and there isn’t too much effort required to deliver it. We can make it even easier for you. All you need to do is manage the salary deductions.
If your employer offers Novated Leasing as a salary packaging option, you can select a vehicle that suits your lifestyle. You can choose the make and model, new or used, sedan, wagon, 4WD, etc., without any of the restrictions usually found with a traditional company fleet. You purchase the vehicle and then enter into a finance agreement in your own name.
Once you've purchased the vehicle, you, your employer and the finance company all sign a Novation Agreement. Your employer agrees to take on your obligations (repayments) to the finance company, and is responsible for all of the agreed vehicle expenses which are deducted from your remuneration as part of your salary packaging arrangement.
You agree to "salary sacrifice" a portion of your earnings in return for the benefit of a car equal to that amount. With a Novated Lease, the lease, running costs of the vehicle and Fringe Benefits Tax (FBT) are deducted from your pre-tax earnings, and PAYG income tax is calculated on your reduced salary. This can effectively increase your net disposable income as you pay less tax.
There are two main types of Novated Lease - Fully Maintained, and Non-Maintained. Some employers offer you a choice, while others offer only one, or don't offer Novated Leasing to their employees at all! If your employer doesn't currently offer Novated Leases, or only offers you a limited choice, please have a chat to your Roche Finance consultant - we can assist employers with the set-up of an employee Novated Leasing program with minimal fuss and no cost.
Under a Fully Maintained Novated Lease, all operating costs for the vehicle are included as part of your salary package. Operating costs that can be packaged include:
- Lease rental (repayments)
- Fuel and oil
- Service and maintenance
- Comprehensive insurance
- Other types of insurance
- Operating Costs and Fringe Benefits Tax reporting
With a Fully Maintained Novated Lease the lease payments, budgeted maintenance and fuel costs are shown separately. The budgeted amounts are reported on a monthly basis and reconciled at the end of the lease.
All costs and applicable Fringe Benefits Tax (FBT) are deducted from your salary package.
Under a Non-Maintained Novated Lease (or Finance Only Novated Lease) you are responsible for all maintenance and running costs. Only the Lease rental, and any applicable Fringe Benefits Tax (FBT), is deducted from your salary package. You pay for the vehicle running costs as they occur out of your own pocket with after-tax dollars.
Novated Leasing offers a range of benefits for both employees and employers.
Novated Leasing offers many benefits for employees:
A Novated Lease is both cost and tax effective. Your salary packaged vehicle costs are paid from your pre-tax income. Paying with pre-tax dollars means that you enjoy a lower rate of tax on the benefit than if you were to pay for the running costs of the vehicle using after tax income. You save money.
- Freedom to select the vehicle of your choice. This is because a salary packaged vehicle is not part of the company fleet.
- The vehicle is yours to use 100% of the time. The vehicle is yours and there are no restrictions on who can drive it.
- Your lease and your vehicle are portable. If you change jobs, you can take them both with you and enter into another Novation Agreement with your new employer and the financier.
- You benefit from any equity built up in the vehicle during the term of the lease. Any profit realised on the sale of the vehicle at the end of the lease is tax-free.
- Lease repayments are fixed for the term of the lease.
- You can select flexible lease terms from 24 to 60 months.
- You can select flexible lease residuals, bearing in mind the Australian Tax Office (ATO) minimum residual guidelines for leases and the financier's maximum residual guidelines.
- Under a Novated Lease, the financier applies an Input Tax Credit (ITC) to remove the GST from the amount financed. This means that your repayments will be lower as you finance a reduced, GST-exclusive amount.
- Under a salary packaging arrangement all finance and operating costs for the vehicle are known as a "related benefit" and are GST and income tax-exempt.
Novated Leasing also offers a number of benefits for employers:
- The ability to provide more flexible remuneration to employees at little-or-no cost to your business.
- Significant savings of time and money compared to the administration of a company fleet.
- Elimination of the residual-value risk of a company fleet.
- The employer is not responsible the vehicle if an employee leaves, and is not left with vehicles surplus to requirements.
- Vehicles provided under a Novated Lease are "off balance sheet" - neither an asset nor a liability.
- Reduced employee on-costs, such as Payroll Tax and WorkCover premiums.