Novated leasing provides a great opportunity to take off the financial pressure when buying a vehicle, without the hidden costs and huge amounts of interest. By offering you the ability to lease a motor vehicle on behalf of your employee, staff can use pre-tax dollars to make payments and budget stress is significantly reduced. This salary packaging option has become very popular throughout Australia because it provides significant GST savings and income tax. It also allows the employee to effectively manage all vehicle financial obligations in monthly payments. From an employer point of view, novated leasing is a cost effective way to manage fleet and reduce risks. But what’s the best option? A novated lease that’s fully maintained or one that’s not? Here’s the differences between the two explained.
What is a Fully Maintained Novated Lease?
A novated lease that’s fully maintained takes the purchase price of the vehicle and all its running costs into the lease arrangement. As far as the two options go, this one tends to be the most popular because it covers absolutely everything including vehicle payments, fuel, insurance, registration fees, tyres, FBT (Fringe Benefit Tax), maintenance costs and accident management. All these costs are calculated into a simple, easy to manage monthly payment which allows the employee to pay all vehicle related costs in a single payment.
Novated leases that are fully maintained ensure that the employee accepts responsibility for the residual value at the end of the lease. All novated leases must have a residual value. It’s an amount that remains at the end of the car lease calculated based on percentages set by the ATO (Australian Taxation Office).
What is a Non Maintained Novated Lease?
Novated leases that are not fully maintained include only the purchase price and possibly one or two other vehicle expenses (e.g. insurance). The employee will be responsible for additional running costs such as fuel, insurance and maintenance, and will also be required to pay the residual value at the end of the lease.
As nothing else is covered, the employee will need to budget for all vehicle maintenance and running costs from their post-tax income.
Benefits of a Novated Lease
Both novated leases types offer the benefits of flexibility, great tax deductions and reduced admin costs for the business owner. As far as convenience goes, a novated lease that is fully maintained can be much more beneficial to both the employee and employer. With all the extra costs consolidated into the one monthly payment it makes it a lot easier to manage everything.
Novated leases work exceptionally well because a significant portion of the monthly payments are coming out of your pre-income tax. This can be a great saving down the track. No deposit is required to be put down on the vehicle and there’s flexible terms, like upgrading when you want without having a locked in account. A monthly invoice will show you everything you are paying for, without any hidden costs, and will allow a much easier way to budget for the vehicle.
Which One is Best?
If you are planning to take advantage of what novated leases can offer, it’s best to go with the full package. Although a basic novated lease can reap the tax savings it definitely has its limitations when it comes to the running and maintenance costs of the vehicle.
Because all these expenses are taken out of your pre-tax salary, it can save you a huge amount of money in the long run. With a fully maintained novates lease, the employee will have access to a fuel card for fuel purchases, roadside assistance and automatic registration renewal and accident management services. Alongside the standard maintenance costs too.
The best way to decide what one will work best for your employee and business needs is to weigh up the additional costs of maintenance, fuel and everything in between.
For more information, call Fleetcare on 134 333.