Why Employers Should Consider Offering Novated Leases to Their Staff

As an employer in Australia, you may be seeking innovative ways to financially reward, motivate and entice your valued employees without going over budget. One solution that is gaining traction is the novated lease - a tax-effective leasing arrangement that allows your staff to make car repayments from their pre-tax salary under a 'salary sacrifice' arrangement with your organisation. By offering novated leases, you can position your company as an attractive employer of choice, providing a valuable employee benefit at no additional cost to your business.

Novated leases offer a range of benefits for both employers and employees, from tax savings and reduced running costs to fringe benefits tax (FBT) elimination and enhanced employee satisfaction. In this article, we'll explore why you, as an employer, should consider offering novated leases to your staff, and how this innovative approach can help you attract, retain and reward top talent within your organisation.

Key Takeaways:

• Novated leases allow employees to make car repayments from their pre-tax salary, providing tax savings and improved cash flow.
• Offering novated leases can position your organisation as an attractive employer of choice, helping you attract and retain top talent.
• Employers can benefit from reduced fringe benefits tax (FBT) obligations and cost-neutral implementation of the novated lease program.
• Employees enjoy tax savings on personal car use, reduced monthly running costs, and the convenience of GST-free payments.
• Setting up a novated lease program requires partnering with an authorised provider and integrating the program into your payroll system.

A novated lease is a unique, tax-effective financing option that allows you, as an employee, to purchase a new or used car through a salary sacrifice arrangement with your employer. This innovative leasing arrangement enables you to make your car repayments directly from your pre-tax salary, providing significant financial benefits.

A Tax-Effective Financing Option

The key advantage of a novated lease is its tax-effective nature. By using a portion of your pre-tax salary to cover the leasing and financing costs of your vehicle, you can reduce your taxable income and, as a result, your overall tax obligations. This can lead to substantial tax savings compared to purchasing a car outright or through traditional financing methods.

Salary Sacrifice Arrangement with Employer

The salary sacrifice arrangement is at the heart of a novated lease. Your employer agrees to deduct a portion of your pre-tax salary to cover the car repayments, insurance, fuel, and other associated running costs. This arrangement not only benefits you but also your employer, as it can position them as an attractive employer of choice.

New or Used Car Purchase

With a novated lease, you have the flexibility to purchase a new or used car of your choice. Whether you're in the market for a brand-new vehicle or a pre-owned model, the novated lease structure can be tailored to suit your specific needs and preferences, providing you with the freedom to choose the car that best fits your lifestyle and budget.

Offering novated leases to your employees can position your company as an attractive employer of choice. By implementing a structured novated lease program, you can provide your staff with a more appealing salary package at no additional cost, reducing the pressure on wages and salary negotiation.

Increase Employee Satisfaction

When you offer novated leases, you demonstrate your commitment to supporting your employees' employee benefits and overall job satisfaction. This can be a powerful tool in attracting and retaining top talent, as employees appreciate the value of this fringe benefit.

Cost Reductions and FBT Elimination

Implementing a novated lease program can also provide significant cost reductions for your business. By offering company cars through a salary sacrifice arrangement, you can eliminate the need to pay fringe benefits tax (FBT) on these employee benefits. This can result in substantial tax liability savings, making your business more efficient and cost-effective.

When employers offer novated leases, employees can enjoy a range of benefits that can significantly improve their financial situation. One of the key advantages is the ability to tax savings on personal cars. With a novated lease, you can use your vehicle for personal use without the need to use it for work or business purposes, allowing you to claim tax deductions on your car expenses, registration, fuel, tyres, and insurance.

Pay for Car and Expenses from Pre-Tax Income

Another significant benefit of a novated lease is the ability to pay for your car and related expenses directly from your pre-tax income. This arrangement, known as a "salary sacrifice," allows you to reduce your taxable income, resulting in tax savings and increased take-home pay.

Reduce Monthly Running Costs

Novated leases can also help you reduce your monthly running costs for your vehicle. By bundling all your car-related expenses, such as registration, insurance, and maintenance, into a single payment, you can benefit from GST-free payments and potentially negotiate better deals with the leasing provider.

GST-Free Payments

One of the additional advantages of a novated lease is the GST-free payments. Since the lease payment is made from your pre-tax income, you don't have to pay GST on the full cost of the vehicle, further enhancing the tax savings you can enjoy.

Establishing a successful novated lease program for your organisation requires careful planning and collaboration with an authorised provider. By partnering with a trusted novated lease specialist, you can streamline the paperwork and administrative process, ensuring a seamless experience for both you and your employees.

Partner with an Authorised Provider

Before embarking on a novated lease program, it's crucial to engage with an authorised provider - a finance institution or leasing company that specialises in salary sacrifice arrangements. These providers can guide you through the employer obligations and ensure your payroll integration is seamless, enabling efficient pre-tax deductions for your employees.

Minimal Paperwork and Administration

One of the key benefits of a novated lease program is the reduced paperwork and administrative burden for employers. Your authorised provider can handle the majority of the paperwork, leaving you with minimal involvement in the set-up and ongoing management of the novated lease arrangements.

Payroll Integration for Pre-Tax Deductions

Integrating your payroll system with the novated lease program is essential for facilitating pre-tax deductions. Your authorised provider can work closely with your payroll team to ensure a smooth payroll integration process, allowing your employees to seamlessly contribute to their car lease payments from their pre-tax income.

As an employer offering a novated lease program, there are several important factors to consider. Firstly, the

employee liability aspect is crucial - the financier agreement for the novated lease is signed by the employee, which specifies the non-liability of the employer. This means there is

no liability to the employer, and the employee retains the responsibility to pay the lease if they decide to leave the organisation.

Fringe Benefits Tax (FBT) Management

Another key consideration is the management of fringe benefits tax (FBT) . Employers need to ensure they have a comprehensive understanding of the FBT implications and requirements when offering a novated lease program. This includes calculating the FBT payable, ensuring proper administration, and maintaining compliance with the relevant regulations.

Cost-Neutral for Employers

Importantly, a well-structured novated lease program can be cost-neutral for employers. By offering this benefit, employers can provide a valuable perk to their employees without incurring additional costs. This can be a significant advantage in attracting and retaining top talent, positioning the organisation as an employer of choice.

Employee Departure Handling

Finally, employers need to consider the implications of an employee's departure from the organisation. In the event of an employee leaving, the novated lease agreement may include provisions for the employee to take over the lease or for the employer to assist in transitioning the lease to the departing employee. Careful planning and clear communication with both the employee and the novated lease provider are essential to ensure a smooth and seamless process.

In conclusion, offering novated leases can provide significant benefits for both employers and employees in Australia. For employers, it allows them to position themselves as an attractive employer of choice by offering a tax-effective way for employees to pay for a vehicle from their pre-tax salary. This can help employers attract and retain top talent by providing a valuable employee benefit at no additional cost.

Novated leases offer a mutually beneficial opportunity for employers and employees alike. Employers can leverage this unique salary packaging arrangement to enhance their employee value proposition and become an employer of choice, while employees enjoy the financial advantages of tax savings and reduced running costs for their personal vehicles. This strategic partnership can contribute to a more engaged, motivated, and loyal workforce - a win-win scenario for all stakeholders.

By exploring the employer benefits and employee benefits of novated leases, organisations in Australia can unlock a powerful tool to attract and retain staff, ultimately strengthening their competitive edge in the market. The implementation of a well-structured novated lease program can be a strategic investment in your organisation's future, positioning you as an employer that truly values and supports its most valuable asset - its people.

How Driva Can Help You Finance Your Next Vehicle Purchase 

Driva can help you finance your next vehicle purchase through a good novated lease. By providing novated leases to employees and employers, Driva offers tax benefits and savings for employees. With a novated lease, you can make lease payments from your pre-tax income, potentially saving you money. Driva compares 30+ lenders so you get the best rate, ensuring transparent pricing with no hidden fees. They help you understand if a novated lease is a good option for you, taking into account your income tax situation and potential incentives. If you are considering buying a new car, especially an electric vehicle, a novated lease could save you money in the long run.

What is a novated lease?

A novated lease is a car financing arrangement where an employer leases a car on behalf of an employee, with payments made from the employee's pre-tax salary.

How can offering novated leases benefit employers?

Employers can offer novated leases as a valuable employee benefit, providing potential savings on the purchase price, tax savings through GST, and offering flexibility in car choice.

What are the potential savings for employees with novated leases?

Employees can potentially save on purchasing a car outright by using pre-tax salary for novated lease payments, resulting in tax savings and more affordable buy-in costs.

How can employees find a new car for work through novated leases?

Employees can work with a dealer to select a suitable car for work, with payments structured through the novated lease arrangement.

What is the process involved in setting up a novated lease?

To set up a novated lease, employees need to get in touch with the organisation's HR or admin to understand the terms and conditions, and then find a new employer to offer the lease.

Do novated leases cost anything to set up?

Generally, novated leases don't cost anything to set up, though employees will need to make payments towards the car throughout the financial year.

How can employees make payments towards their novated lease?

Employees can make payments from their pre-tax salary, deducted post-tax deduction, or through a pay cycle agreed upon with the employer.

Is a novated lease suitable for personal use cars as well?

Yes, employees can use novated leases for cars used personally, for work, or as part of a fleet, offering the organisation flexibility in car choices.