Benefits Of Novated Lease Agreements

The trend of purchasing a car under a novated lease arrangement is quickly growing all over Australia. A novated lease is an agreement in between an employee, his or her employer and a car finance company. This type of agreement is normally helpful to all the related parties. So, how does a novated lease work? Simply put, a novated lease enables a company to offer an employee with a vehicle that includes the lease repayments as part of the employee’s overall remuneration package. In doing this, the company can satisfy their tool of trade fleet needs and also providing greater flexibility and benefits for their workers. This practice makes sure the cars that the firm has are well-maintained. Moreover, these cars neither form a liability on the business nor do they turn into an asset. This type of an agreement also offers significant financial benefits in the case of an employee wanting to buy a car. If an employee leases the vehicle, they can ask their employer to make the monthly repayments on their behalf from their pre-tax salary. The utilisation of pre-tax remuneration can legitimately cut down on an employee’s taxable salary resulting in significant income tax savings. rnThe ownership of the vehicle prevails with the employee always. If the employee changes employment, the car goes with them, and the novated lease gets transferred to the new employer. Another advantage for the employer is that the vehicle is not considered an asset or a liability therefore doesn’t show up on the company’s balance sheet. To add to that, the business is not liable for the on-going upkeep of the car and it goes when the employee leaves the business. Finance companies usually consider novated lease arrangement favourably as the risks involved in lease repayments by an individual are way better than with a corporate or other company. The finance company, hence, has greater assurance of payment if the employer makes payments instead of the employee.