Novated lease is a popular method for financing a car; in this arrangement, your employer makes the monthly payments instead of you. The principal reason why it has become common is since the employer enters into the lease agreement with the financier and makes the payments on your behalf, the car is treated as a company vehicle with the employer receiving all the tax benefits, which are usually passed on to you. If the lease includes the monthly running expenses, the tax savings at the end of the day can be quite significant for you. Employers also like this arrangement because it allows them to repackage the salary of an employee with lesser tax incidence at no real cost to the business and keeps the employee happy. The main benefits explained:

Income Tax Savings

Among the main attractions of a novated lease is that it allows employees to save significantly on income tax. The entire monthly payment, as well as, the running expenses and costs incurred on maintenance, insurance, and all other incidental expenses are paid by the employer as the lease rental and the salary package of the employees is reduced commensurately. The employee’s income, and therefore the tax payable,is reduced considerably.

Savings on GST

Ordinarily, when an employee buys a car, he has to pay GST for which, he is not eligible for any deduction. However, in a vehicle solutions novated lease, the financier buys the vehicle and claims the GST credit that he is eligible for. GST that is paid by the employer to the financier when making the monthly payments is also claimed as a tax credit by the employer. The tax credits passed on by the employer, in effect, makes the vehicle almost completely free of GST for the employee. Of course, the employer will need to pay GST on the vehicle’s residual value if he decides to buy it at the end of the lease period.

Savings on the Cost of the Car

When an individual buys a car from the manufacturer, he is only eligible for the standard discounts or promotional offers that may be on at that point in time but generally, there is a very limited scope of reducing the sticker price of the car by bargaining. Under a novated car lease, the car is actually bought by the lease company and since these companies are usually bulk buyers, they enjoy differential pricing by the manufacturers. The leasing companies exercise their muscle power to bring the prices down substantially and pass on the benefit to the buyer, who is the employer, in the form of lower monthly lease payments.

Conclusion

It is thus evident that an employee is better off if he opts for a novated lease agreement for his car. If the company allows, the employee can even buy a second car for use by his family and receive all the benefits. Of course, for him to enjoy the savings, his employer has to have such a program in place to accommodate the employee.

Author Bio: Lucy Jones is an experienced blogger who has written articles for several renowned blogs and websites about Car/financing a car to engineer more business traffic on websites.She like to go for long drive with her friends.