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A modern sports car parked at the beach around sunset.

4 Benefits of a Novated Lease for Employees and Employers


By: Jayde Walker – Copywriter

Buying a new car in the midst of a pandemic may not seem like a bright idea. There’s financial pressure on the entire country and many people are trying to budget and save money.

What happens though, if you still need a car?

Novated leases are a cost-effective solution to own and run your own vehicle.

If you’re a business and looking for a clever way to reward employees, it also gives you and your staff access to big benefits. For both parties, novated leasing can make a positive difference to tax relief and provide some significant savings, which can make planning for a new or used car a lot easier.

How a Novated Lease Works

Novated leasing involves three parties – you, your employee and a financier. It’s used as part of a salary packaging agreement and takes the pain out of car ownership, as well as reducing your vehicle maintenance and fleet management costs.

Is a novated lease worth it in 2021? Here are a few advantages.

1. Salary Packaging Savings

Salary packaging is an arrangement where your staff receive less income after tax, in return for you paying for benefits out of their pre-tax salary. These benefits include novated leasing and payments for rent or mortgage, childcare, aged care, personal loans, car running costs, grocery shopping or additional superannuation.

From a business perspective, salary packaging supports employee retention.

It also means savings for both employers and employees because it reduces income tax liability and the total taxable income. Offering it to staff allows you to give them a flexible benefit at little or no cost to your business. Engage with a good novated lease provider to keep the process cost-neutral.

If your employee doesn’t have the money to pay for a car upfront, a novated lease can finance the car instead.

  • The arrangement is most effective for those on mid-to-high incomes
  • A car financed through a novated lease doesn’t count as an asset or liability for you or your business
  • Ideal for businesses with tight margins or not-for-profits
  • Increases your employee’s disposable income, on top of getting them a vehicle for work and personal use
  • Can run anywhere from one to five years

Did you know? 

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Novated leasing cuts down FBT expenses. Although a car is a taxable fringe benefit, the Fringe Benefit Tax (FBT) payable is offset, making it both cost and tax-effective.

2. Flexible Incentives

While employees are investing in flexible work practices, the novated car lease is a way to deliver tangible savings, while giving staff an incentive that’s practical, profitable and productive.

It’s also the perfect attraction and retention tool. If you’re trying to find new ways to motivate your staff, boost company culture and keep quality workers, novated leasing can be set up for different-sized businesses from SMEs to large corporations.

When done effectively, novated leases improve decision-making through data insights and fleet management reporting.

3. Consolidate Expenses

With a novated lease, the costs of buying and running a car are bundled into one payment.

The benefits are uncomplicated fleet management and better budgeting for you and your staff, which helps them get more for their money.

Costs you can bundle include:

  • Car registration
  • Maintenance and servicing, such as new tyres, cleaning and detailing, registration renewals and access to qualified mechanics
  • Insurance
  • Fuel
  • Purchase cost of the vehicle

4. A Well-Deserved Tax Break

If you or your employees are on the hunt for ways to reduce taxes, consider the tax benefits of novated leasing.

Because any car purchased under a novated lease is part of a salary package, you’re entitled to deductions that can lift your cash flow and reduce the amount of tax payable. While staff pay for their own car out of their pre-tax dollars, you claim an input tax credit on any GST paid, including the GST on all running costs.

The Bottom Line

Novated leasing can be a positive contribution to company culture and an easy way to reward your staff. Given the savings and flexibility, many HR managers and employees see it as a huge incentive they’ll appreciate and thank you for.

Author Bio

This article is written by Jayde Walker – a copywriter based in Perth who writes in the business industry. Catch her on LinkedIn.

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