A novated lease is a three-way agreement between a company and a vehicle lease company on behalf of its employees. It is a cost-saving plan that benefits both the employee, the company and the leasing company in the long run. However, the benefits of this car loan policy directly help the employee. If you are an employee of a given company, you will need to choose the vehicle that you want, and your company takes on the full obligation of the lease policy.
Like any other type of car loan, this type of policy is paid in instalments. This means that you have a flexible payment plan depending on your salary. Various parameters come into play when deciding the amount and value of each repayment. Even though other car loans are payable through taxable income, a novated lease agreement instalments are paid using pre-tax salaries. While filing your tax returns, you will have reduced income taxes on your gross income. You will have lower tax rate and benefit from lower running costs after pre-taxation. There are many novated lease pro and cons that you need to know before getting into this agreement.
When you are in a novated lease agreement, you will benefit from the residual value of the vehicle. GST (Good Service Tax) is based on the remaining value of goods and services. The overall maintenance and running costs of the car are considered as related benefits and thus are both GST and income tax exempted.
After the agreement has been settled and relevant charges completed, you will have full ownership of the vehicle. This means you can use the car whenever you want, however you want. Additionally, you will have exclusive rights to who rides in your car or who drives it. Simply put, you have 100% control and use of the vehicle.
If your company is large enough to take leases of two or more employee at once, you may be eligible to receive great discounts and offers from the leasing company. Overall, you will have saved some few backs from the promotional offers from the leasing company.
Moreover, you have the right to choose the type of vehicle that attracts a good saving on your charges. Many people find novated lease agreements favourable because they are short-term loan policies. Most of these lease agreements are usually not more than five years. You, therefore, do not have overspread years of obligations and loan compliances. Additionally, the flexibility with which you can renew the lease agreement also attracts a good number of people to this scheme.
Novated lease plans have overwhelming benefits. Nonetheless, like any other type of car loan, there are downfalls to it. You have to take care and analyse your agreement before signing off.