Novated leasing is an attractive and efficient way for employers to offer additional benefits to their employees while also enjoying potential tax advantages. This guide will provide an overview of novated leasing, explain its benefits for employers, and offer practical steps for implementing a novated lease program in your organisation.
What is Novated Leasing?
A novated lease is a three-way agreement between an employer, an employee, and a finance company. Under this arrangement, an employee leases a car, and the employer makes the lease payments directly from the employee’s pre-tax salary. This salary packaging option can result in significant tax savings for both the employer and the employee.
Benefits of Novated Leasing for Employers
Attract and Retain Talent
Offering novated leasing as part of your benefits package can make your company more attractive to potential hires and help retain existing employees. It demonstrates a commitment to providing valuable perks and supports employees’ financial well-being.
Tax Benefits
Employers can benefit from reduced payroll tax and superannuation contributions, as the lease payments are made from the employee’s pre-tax salary. Additionally, the Fringe Benefits Tax (FBT) exemptions and concessions can further enhance the financial benefits.
Cost-Effective Fleet Management
For businesses that require employees to use vehicles for work purposes, novated leasing can simplify fleet management. It transfers the responsibility for vehicle maintenance and running costs to the employee, reducing administrative overheads for the employer.
Improved Cash Flow
Novated leases are off-balance-sheet items, which means they do not appear as liabilities on the company’s balance sheet. This can improve the company’s financial ratios and overall cash flow management.
Employee Satisfaction
Employees can benefit from lower car ownership costs due to tax savings, potentially leading to higher job satisfaction and morale.
Steps to Implement a Novated Lease Program
Partner with Clear Lease
Choose a reputable novated lease provider like Clear Lease who can offer competitive rates and comprehensive support. They will handle the administrative tasks and ensure compliance with relevant tax regulations.
Communicate the Benefits
Educate your employees about the advantages of novated leasing. Highlight the potential tax savings, the convenience of having running costs covered, and the simplicity of salary packaging.
Simplify the Process
Work with your leasing provider to create an easy and transparent process for employees to apply for a novated lease. This can include online calculators to estimate savings, clear instructions, and dedicated support.
Monitor and Review
Regularly review the novated lease program to ensure it continues to meet the needs of your employees and your business. Gather feedback from participants and adjust the program as necessary to maximise its effectiveness.
Stay Compliant
Ensure that all FBT obligations are met and that the program complies with current tax laws. Your leasing provider should assist with this, but it’s important to stay informed about any changes in regulations.
Novated leasing is a valuable tool for employers looking to enhance their benefits package, attract and retain talent, and enjoy potential tax savings. By partnering with a reliable leasing provider and effectively communicating the benefits to employees, you can implement a successful novated lease program that supports both your business objectives and your employees’ financial wellbeing.
Frequently Asked Questions (FAQs)
Can an employer claim GST on a novated lease?
Yes, an employer can claim GST on a novated lease. Here’s how it works:
Claiming GST on a Novated Lease
1. Input Tax Credits:
When an employer enters into a novated lease agreement, they can claim input tax credits for the GST included in the lease payments. This means the employer can recover the GST portion of the lease payments as a credit against their own GST liability.
2. Lease Payments:
The GST is included in the lease payments made by the employer. By claiming the input tax credits, the effective cost of the lease is reduced for the employer.
3. Running Costs:
In addition to the lease payments, if the employer also covers running costs such as fuel, maintenance, and insurance, they can claim input tax credits for the GST included in these expenses.
4. Fringe Benefits Tax (FBT):
While the employer can claim GST credits, they also need to consider the FBT implications of providing a novated lease. FBT is calculated on the taxable value of the car fringe benefit provided to the employee.
Example:
Let’s consider an employer who makes monthly lease payments of $1,100 (including $100 GST). The employer can claim $100 as an input tax credit each month, reducing their GST liability.
