Novated car lease is a financial condition, where you can lease a car from one party to another. Novated car lease is basically a contract, also known as a novation contract, maintained within three parties mainly; you, the financial organization and your employers. To be simply put, you, the employee agrees to a contract to take a car on a lease, from a leasing company. Your employer then needs to agree on being held accountable for the payments. The payments are then made from the worker's pre-tax wages, commonly known as the salary sacrifice. In case of termination of services, the accountability of the lease falls back on the worker again. There are two different types of novated leases:
What is a novated lease?
Novated car lease explainedin this article for your better understanding. Under the agreement of a novated lease, you get the lessee’s rights and responsibilities for the leasing of the car. The method of transferring the rights and obligations of the contract occurs, between you, the finance company and the leaseholder. Usually, the leaseholder is your employers or associates. Novated car least is the best option for employees who wish to get the car as a part of their pay package scheme. The company offers pay package as an alternate method for paying for the car.
Tax Insinuations of a novated Car lease:
In order to get the tax insinuations of a novated car lease explained, you first need to understand, that the car finance company and the owner can allege an ITC or Input Tax Credit, to incorporate the GST in the cost and monthly lease expenses of the car. The basic advantage of the Input Tax Credit is reduced down to the employee, making it completely GST free. At the end of the period of the lease or in case of early service termination, GST can be charged on the remaining payment. In this case, the Novation reverts to the employee. Then he, instead of his employer, becomes obligated to compensate the GST on the outstanding value.
Role of FBT tax in Novated Lease
FBT or Fringe Benefits Tax can be payable with the assistance from a fully functional Novated Lease. In such cases, the expenditure is transferred to the employee. FBT has been dependent on factors like kilometres travelled every year, for a long time. The number of kilometres is inversely proportional to the FBT. As an employee, you can counterbalance the FBT by expense management of the car. This is known as the Employee Contribution Method or ECM.
Basically, there are two types of major novation agreement. One of them is full or split full novation, and the second one is a partial novation. In case of full novation agreement, the employer becomes in charge for making all the expenses for the lease and assures that all the remaining payment for the automobile will be paid in time, although the employer is not liable for the guarantee of payments of the remaining value of the car. That responsibility falls on the shoulder of the employee.
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