
It is becoming increasingly important that businesses have the right strategies in place to attract and retain talent, and a solid novated leasing policy is one of them.
In general, salary packaging ensures that businesses can attract, recruit, engage and retain the best possible workers by providing a number of financial incentives.
A novated lease can help staff members save thousands of dollars in tax while purchasing a new or used car.
This arrangement is convenient as it allows the buyer to bundle the vehicle’s expenses into one simple payment.
Under the agreement, employees can find the car of their choice, sign a lease with a finance provider or bank, enter into an arrangement with their employer (which covers the lease repayment from their pre-tax salary and can include some running costs) before the company makes the repayments on their behalf.
Novated leases don’t just cover on-road costs like upfront price, stamp duty and registration — they can also include other running expenses such as insurance, fuel, tyres and servicing.
According to the Commonwealth Bank, if an employee changes jobs, he/she can take the vehicle and continue to make repayments directly or transfer the agreement to their new employer.
“Keep in mind that if you change jobs or stop working, the responsibility for making the repayments remains with you,“ the bank warned.
“You may be able to transfer your lease to your new employer, but you may also have to take over the repayments (which may no longer be pre-tax).
“When you have a car under a novated lease with your employer, the federal government considers it to be a fringe benefit.
“Fringe benefits tax (FBT) may then apply. While employers are liable to pay FBT under a novated lease regime, this cost is generally passed on from your pre-tax salary.”
Overall, the bank said, the benefits were significant.
For instance, with a novated lease one can use the vehicle for personal reasons — it isn’t restricted to work or business purposes.
Moreover, an employee’s income, the cost of his/her car and the ongoing running expenses each year will decide how cost-effective the arrangement can be.
If anything, it should result in a reduction of taxable income.
Some advantages may also depend on the way a lease is structured.
Costs like registration, fuel, tyres and insurance may be packaged together so they can be covered by one repayment.
For example, for drive-in, and drive-out employees, expenses including fuel and the kilometres they drive from home to camp and back can be salary packaged.
Employers may also allow the lessee to pay part of the lease from after-tax dollars (called an employee contribution).
For those not in the highest marginal tax rate, this can be cost-effective as the FBT (which is based on the highest marginal tax rate) may not have to be paid to the employer from a pre-tax salary in addition to the novated lease payments.
Novated leases can also effectively mean motoring costs are goods and services tax (GST) free for buyers.
In addition, GST is covered by the finance provider, who can claim an input tax credit.
The FBT weighs in at 47 per cent of the vehicle’s price (although it doesn’t apply to every make and model).
Just to make novated leasing a little more appealing, particularly for the environmentally-conscious who want to help negate climate change, the federal government has introduced an electric vehicle (EV) discount.
This comes in two forms — import tariff exemptions (ITE) and the above-mentioned FBT provisions. In terms of the ITE, imported cars usually come with a 5 per cent import impost, but the government has scrapped this for certain EVs, thus making them cheaper.
An EV may also be eligible for an FBT exemption, provided it is the first time the car is both held and used after 1 July 2022, it is used by a current employee or their associates (such as family members), and luxury car tax has never been payable on the importation or sale of the car.
The government will complete a review of this exemption by mid-2027.