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Novated Leasing: How Does It Work?

Car PurchaseOver the years, novated leasing has been gaining popularity. The reason behind this is it enables employers to give financial advantages to their employees with almost no cost to their businesses. But what is it really and how does it work?

Understanding Novated Car Lease

Novated car lease is a type of financial agreement between the employer and leasing company or financial provider. In this term, the leasing obligations you have will be transferred to the company you're currently working for. Your employer will then shoulder the responsibility of paying the leasing, maintenance, registration and all the running costs of the leased car.

Your company will then deduct all these expenses from your salary. The process is also known to be as salary arrangement package. Unlike when you're buying or renting a car, this setup provides better tax savings because the taxable amount in your income will be lower. However, in cases when you decide to quit or leave the job with the agreement still ongoing, all the repayments will be transferred to your name and is no longer under the care of your employer.

The Benefits of Novated Car Lease

LeaseMasters and other lending institutions noted that people turn to novated car lease for a number reasons. Here are some of them:

For Employers:

  • It takes away the burden of managing a car fleet in the company.
  • Eliminates the need to record the vehicle as an asset or liability to the business
  • The company can enjoy deduced tax for all payments made covering the agreement
  • Once the employee leave or resign from their job, it takes away the responsibility of making lease payments
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For Employees:

  • It offers tax savings in the form of salary sacrifice arrangements
  • You have the freedom to choose a vehicle you want, whether it brand new or used
  • Allows you to use the car for both personal and work purposes without limitations
  • Gives you the option to own the vehicle at the right at the end of the leasing term

Novated leasing is indeed the easiest and most inexpensive way to drive and own a car. However, this term might not be a tailor-fit to everyone. Before you decide on entering this deal, be sure you've weighed the pros and cons of it. This is to avoid getting caught up in an arrangement you might regret after a while. Review the terms and be sure you understand what they truly mean.

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