Understanding Novated Leasing and the Multiple Advantages Involved

Have you already heard of the term novated leasing? Are you truly aware of the advantages this type of loan plan can provide? And more important, do you understand how this novated lease system works?

Volkswagen Beetle

Basically, novated lease plans refer to contracts between an employer and the employee, which allow the employee to lease a vehicle of his or her choice through the employer. The repayments are made by the employer by deducting them from the pre-income tax income.

When leasing any type of vehicle an employee can ask to repay the loan with monthly repayments made by the employer. By using pre-tax salary, employers can find themselves saving great money on tax payments, as the taxable remuneration would be based on a lower income, due to the deducted repayments.

Apart from the advantages as far as tax deduction is concerned, there is an added asset as the vehicle purchased belongs solely to the employee and an employer cannot assume the property. If an employee changes employer the novated lease is transferred to the company he or she works for, thus the ownership prevails with the employee in all cases.

A novated lease arrangement benefits both parties, and all rights and obligations are stipulated in a deed between the financing company, the employer and employee. In the majority of cases, as mentioned above, the employer can transfer all lease obligations to another, should the employee change company, retaining right of ownership.

The employer will also have several advantages, as the vehicle purchased will not appear on the balance sheet of the company subscribing to a novated lease, therefore will not be liable for tax as it is not considered as an asset. The maintenance of the vehicle is taken care of and the car belongs to the employee, thus not liable for tax.

This novated leasing also provides great incentives financially, which are very attractive to any employee wishing to purchase a new vehicle. The employee can request the employer to repay the lease through their pre-tax salary, which results in considerable income tax savings.

As an employee you will have one hundred percent ownership and control over your own vehicle, being able to use it and take full advantage of the benefits of a new car. You can decide who will use the vehicle and how to go about maintenance, not to mention the luxury of choosing the type of vehicle you wish for your specific needs and. Having a personal car is indeed an asset as far as comfort and personal satisfaction is concerned.

A company that chooses to offer the novated lease benefits will have the advantage of providing its employees with their personal cars, without having to take care of a company fleet, which rapidly becomes redundant and annoying for maintenance, insurance as well as factors of risk.

Finance companies are happier with novated lease arrangements, as larger companies are involved, thus minimizing the lease repayment risks. Individuals that sign for loans are considered a higher risk as far as refunding is concerned, as they do not have the capital and assets a company has.

These agreement packages are easily incorporated within the salary packages, thus providing a greater incentive for the employee. Novated leasing is definitely a successful strategy for both parties.

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