Novated Lease Agreement
Different types of finance
Residual payments
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Novated Lease Agreement
A novated lease agreement is a finance lease with one crucial difference. Normally a loan for a car will be between you and the financier. In order to get the tax deductibility for the lease, there are some terms of the lease that you assign (“novate”) to your employer. This effectively makes your personal car a company car and becomes a benefit of employment, a Fringe Benefit.
Different types of finance
| Novated Lease | Hire Purchase | Chattel mortgage | Consumer Loan | |
| Are you employed? | Financier, until the last payment is made | Financier, until the last payment is made | You do, with the car as security to the financier | You do, with the car as security to the financier |
| Who owns the car | No | No | optional | optional |
| Age of car | New or near new | Less than 12 years at the end of the term | Less than 12 years at the end of the term | Less than 12 years at the end of the term |
| Repayments | Monthly, in advance or arrears | Monthly, in advance or arrears | Monthly, in advance or arrears | Monthly, in advance or arrears |
| Term | 12 to 60 Months | 12 to 60 Months | 12 to 60 Months | 12 to 84 Months |
| Balloon or Residual | Required as per ATO Guidelines | No | No | No |
| Tax deductible for employees | Yes | Possible through operating cost and log book | Possible through operating cost and log book | Possible through operating cost and log book |
| GST refunded by employer | Yes | No | No | No |
Residual payments
When you salary package a car through a novated lease, the Australian Tax Office require that you need to have a residual value for the car, which is close to the market value at the end of the lease. This is because the car has a value in your hands which is not taxed at the end of the lease. If you were allowed to pay off the car in full, then when you sold the car the proceeds would not be taxed and the ATO would have given you a free benefit and that is why there is a residual value. That also means that if you make a profit (above the residual value) when you do sell the car, then that profit is not taxed.
Get Pre-Approval now
STEP 1
Calculate you expected savings and the price of the car you want
STEP 2
Go and test drive cars to refine your choice of vehicle and perhaps obtain a quote, but do not sign for the purchase of the car
STEP 3
Contact Us for finance preapproval and to be referred to a fleet manager to get discounts on the vehicle you want
STEP 4
Once you are happy, the fleet manger will give the quote which we will process, finance and arrange for all paperwork to have a speedy delivery