If you’re in the market for a new car then you probably already know about the benefits of novated leasing. A Fleetcare novated lease takes the hassle out of car ownership. You don’t have to find the money up front for the car of your dreams and your employer is effectively responsible for leasing it for you.
The lease doesn’t just cover the purchase price of that new or used car, it covers all the maintenance as well – all those repairs and services as well as the registration and fuel, making it the perfect solution for many employees. You also get the vehicle of your choice and its running costs at a better price, thanks to Fleetcare’s purchasing power.
In simple terms a novated lease is a three-way agreement between you, your employer and a finance company to provide you with a car in a salary packaging arrangement. Your employer is responsible for the lease and you gain a big tax advantage because payments on the vehicle and its running costs come out of your pre-tax salary (that’s before tax). That leaves more money in your pay packet.
It sounds great, and it is, but perhaps you’re scratching your head about residual values?
Well it’s sometimes referred to as a “balloon payment,” and it’s a lump sum of money that you owe to the finance company when the term of your lease is finished. The Australian Tax Office has rules and guidelines for each lease term between 12 and 60 months. The bigger your residual payment, the less you pay from your fortnightly pay. That residual payment is usually a percentage of the amount you borrowed, and it’s usually determined by the length of the lease and the purchase price of the vehicle, including the GST.
Minimum residual value
Now you’d probably like to set the residual value yourself, but unfortunately you can’t because it has already been determined by the tax office. If your lease term is four years, for example, then the ATO minimum residual would be 37.5%.
Minimum residual value – percentage of cost
Term of lease
|
Minimum Residual Value
|
Year 1
|
65.63%
|
Year 2
|
56.25%
|
Year 3
|
46.88%
|
Year 4
|
37.5%
|
Year 5
|
28.13%
|
My lease has ended, what do I do now?
All good things come to an end eventually and so it is with novated leases. At this point you have a number of options. You can simply pay off the residual value and the vehicle is yours to run privately. Alternatively, you can trade the vehicle in for a new vehicle and enter into a new novated lease on the new vehicle. You can also sell the car privately and pay off the residual value that way. A final option is to simply refinance for the residual value over a new term. The choice is yours.
Need to know more?
If a novated lease sounds like the answer to your motoring needs then call us today on 134 333 to find out more.
* Information correct as of date of publication, 29th October 2015.