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 LeaseHire PurchaseChattel mortgageConsumer Loan
Are you employed?Financier, until the last payment is madeFinancier, until the last payment is madeYou do, with the car as security to the financierYou do, with the car as security to the financier
Who owns the carNoNooptionaloptional
Age of carNew or near newLess than 12 years at the end of the termLess than 12 years at the end of the termLess than 12 years at the end of the term
RepaymentsMonthly, in advance or arrearsMonthly, in advance or arrearsMonthly, in advance or arrearsMonthly, in advance or arrears
Term12 to 60 Months12 to 60 Months12 to 60 Months12 to 84 Months
Balloon or ResidualRequired as per ATO GuidelinesNoNoNo
Tax deductible for employeesYesPossible through operating cost and log bookPossible through operating cost and log bookPossible through operating cost and log book
GST refunded by employerYesNoNoNo

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