A novated lease is a financial agreement between an employee and the employer, with the participation of another party for the purchase of a vehicle in a somewhat unconventional approach. The arrangement stipulates that the employee will get the benefit of packaging his or her car as well as its running costs, and then pay for it using pre-tax salary. The immediate result is that an employee will get the benefit of having a new car right away and pay for it together with the running costs via regular monthly deductions from his or her salary by the employer.
So, is novated lease worth it when it seems too good to be true? Well, the answer is a resounding yes. It is why it is becoming one of the most preferred methods of buying a new vehicle these days. Although the car ends up being owned and paid by the employee, the concept of the novated lease is to afford benefits to the parties involved.
Benefits for the Employee
As the employee responsible for the payment of the car, you will benefit from a handful of prospective savings that you do not get in a typical car loan. This includes:
- You do not pay GST on the purchase of the car since the leasing company will buy the car on your behalf.
- You do not pay GST on the running costs since they already are packaged into the lease and will be paid via your pre-tax earnings. Running costs include registration, fuel expenses, and insurance.
- A novated lease gives you access to both brand new and used cars, plus your agreement allows you to change the vehicle every three to five years.
Benefits for the Employer
While it is true that the bulk of benefits go to the employee, there also are things which are advantageous to the employer. The thing is that the novated lease is designed to help the employee avail of a car without the usual burden of paying for it and covering the running costs. At the same time, the employer will benefit in the following ways:
- The employer will enjoy reduced CAPEX if he or she has more employees having personal vehicles, thereby diverting capital for other projects.
- There also is reduced risk because the novated lease will guarantee that employees are driving vehicles with the newest safety features.
- The novated lease will motivate employees to stick with the company
Is novated lease worth it? The answer is an obvious yes. It is no secret that some people are still apprehensive about it since it is a relatively new concept, but with more employers offering them, it will eventually become mainstream or preferred option.