Novated Finance Lease

The advent of Salary Packaging has seen Novated Leases come to the fore as employees seek to have more flexibility in their car choice from the vehicles defined in their employer’s company car policy.

In simple terms, a Novated Lease is one where the employee takes out a Finance Lease with the financier for the vehicle of his/her choice. The employee, his/her employer, and the financier then enter into a tri-partied Novation Agreement whereby the employer makes the lease payments, including, if required, any costs associated with the vehicle’s operating costs, until such time as the end of the lease term is reached or the employee’s employment ceases. If employment ceases during the lease term, the novation is cancelled and the employer’s obligation in respect of making the lease payments ceases and reverts to the employee.

Novated leases provide significant benefits to both the employee and the employer.

Employer benefits:

• A more flexible approach toward the make and model of vehicles available to staff makes recruitment and retention of skilled staff easier.
• The actual lease is with the employee and so the employer has no risk.
• Should the employee’s employment contract be broken, voluntarily or otherwise, the employer has no obligation to continue making lease payments or to pay out the vehicle lease. The vehicle goes with the employee.
• Novated Lease payments are fully tax deductible and Novated Leases are off balance sheet and therefore have no impact on performance ratios or gearing.
• One standard monthly payment covers the finance aspects of the lease. As this monthly payment can be financed by a standing payroll deduction the employer’s salary administration costs should be minimal.
• Time and costs associated with management and disposal of the vehicle are not the employer’s responsibility.