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Benefits of making novated leasing available to your employees

Novated leasing is one of the most cost-effective ways for an employee in Australia to purchase a vehicle. For employers, this makes offering a novated lease a powerful incentive for both new and existing staff.

However, for a business to work, anything you offer as an employer has to work for you in return; fortunately, this is one of the few clear cases where it can. Here are some of the benefits of making novated leasing available to your employees:

As we mentioned, employees love them. They’re a great way to incentivise and reward your staff because, ultimately, a novated lease offers your employees the best chance to make a considerable saving when buying and operating their personal vehicles. Employees may even end up in a lower tax bracket (with a decent tax refund at the end of the year) as a result.

From your side, novated leasing is simple to set up and arguably cheaper, more time-efficient and cost-effective than organising a traditional company fleet of vehicles that you end up responsible for. You’ll work with a novated leasing company that provides the vehicles and manages the administration and compliance aspects of the lease agreement, so all that’s required on your side is an agreement with your employee to make regular, automated payroll deductions to the leasing company.

Novated leasing can also reduce business tax, both upfront and over the course of the lease. Firstly, when you and an employee agree to a lease agreement, you can claim a GST credit as the employer for the GST included in the lease charges. Secondly, when operating the vehicle, novated leasing agreements require the employer to pay any fringe benefits tax (FBT) liability, and any expenses you incur while maintaining the lease, excluding repayments, are tax-deductible for the period the lease is active. Learn more at the ATO’s website.

Lastly, the need for business vehicles usually indicates growth for a business which, as a result, means more employees and higher salaries. As an employer, this means greater responsibilities toward cost balancing and payroll tax liability. By making payments from an employee’s pre-tax salary to reduce their overall income, employers reduce the amount of tax they’re required to pay overall to keep the business running.

You aren’t tied up in the finance of the vehicle. For a novated lease to work, there needs to be an agreement between an employee, a leasing company, and you, the employer. If an employee is dismissed or decides to leave, this removes you from the equation as the employer and also removes your responsibilities and obligations to the lease or repayments. In short, there’s very little liability on your part as far as what happens to the vehicle or the repayments should an employee no longer be with the business at any point in the future.

If you’re on the fence about whether to offer novated leasing to your employees, take a closer look at some of the benefits, most commonly asked questions and see if it’s a vehicle finance option that could benefit you, your staff, and your business.

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