Tax effective car purchase
Written by Medfin's NSW State Manager, Gary Lucie-Smith
The next time you are thinking about finance for a new car, why not look into the benefits of a novated lease?
A novated lease is a type of car lease that allows a business to lease a motor vehicle on behalf of a salaried employee. The employee takes responsibility for the lease. However normally the employer makes the lease payment on behalf of the employee, and then deducts the payments out of the employee's pre-tax income.
If the employee leaves his employment, the novated lease agreement ends. The employee retains the vehicle but all obligations assumed by the employer under the novated lease agreement revert back to the employee.
Vehicles salary packaged through a novated lease attract Fringe Benefits Tax (FBT) in Australia. FBT is treated concessionally for vehicles, so novated leasing can be a tax-effective way for an employee to purchase a vehicle, depending on the type of vehicle, kilometres travelled annually, FBT method used and employee's salary.
Benefits of a novated lease for the employee:
- A potential for income tax savings
- Possible GST savings - that would normally be incurred on car expenses
- Greater flexibility in the choice of a car, compared to a company car arrangement
- The car stays with the employee and on termination of employment can be transferred to a new employer
Benefits of a novated lease for the employer:
- A way to provide an effective increase in employees' salaries with no or minimal cost to the business
- Potentially a cost effective alternative to operating a fleet of company vehicles
- The business does not assume risk for the vehicle
- Employee vehicles are "off balance sheet"
If you are interested in further information on novated leases, please contact your accountant or tax advisor in the first instance and then call your local Medfin Relationship Manager on 1300 361 122.
Terms and conditions apply.
Important information
The material in this publication including any advice (the "Information") is current as at 19/12/07, is of a general nature only and is intended for distribution to Australian residents only. Statements about future matters may not be realised and should not be relied upon. The Information has been prepared without taking into account your objectives, financial situation or needs. Before acting on any of the Information, you should consider whether it is appropriate for your circumstances.
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