What is Novated Lease and the FBT?

What is Novated Lease and the FBT?
October 5, 2017 allcredit

What is Novated Lease and the FBT?

  • Cheryl provided me with amazing service and explained everything to me in a way that was easy to understand. I would not hesitate to recommend allcredit to anyone.
    James, NSW
  • Thank you Cheryl, I love my new car and it’s so easy to pay for my petrol and servicing using my allcredit fuel card.  Ill never buy a car any other way again.
    Elena, WA
  • allcredit was easier to deal with and much cheaper than my salary packaging company
    Ross, VIC
  • Allcredit was easier to deal with and much cheaper than my salary packaging company
    Ross, VIC
  • Cheryl provided me with amazing service and explained everything to me in a way that was easy to understand.  I would not hesitate to recommend allcredit to anyone.
    James, NSW
  • Thank you Cheryl, I love my new car and it’s so easy to pay for my petrol and servicing using my allcredit fuel card.  Ill never buy a car any other way again.
    Elena, WA

When we start diving into the world of financing and leasing, there are a lot of terms which we may or may not understand. This can spell disaster for the customer, because you could end up in an agreement that does not work in your favour after all. Here at Allcredit, we’re proud to provide Perth’s most competitive car leasing services, as well as novated vehicle leasing. A novated car lease is something many people can enjoy, but many of us aren’t sure of the technical speak, so we’ve put together a crash course in novated car lease options, and the FBT which affects it.

What is a novated car lease?

A novated car lease is an agreement between yourself, your employer, and a lender. It enables you to lease a new or used car, with many appealing benefits.

The finance company purchases the vehicle on your behalf, and you pay back the sum over an agreed time period, with pre-determined amounts. This vehicle is yours to use freely, for personal or business use, but it differs from a regular lease slightly through your repayments. Your employer is involved because the amount you owe is repaid from your pre-tax salary, rather than your conventional income. This way, you are able to lower your income tax and increase your take-home amount.

While some businesses may provide a company vehicle, a novated lease gives you the opportunity to own your own car, and use it as you wish. This also means that the car is yours to keep and maintain should your employment end, and your employer is not left with a fleet of poorly maintained, dated vehicles.

What is FBT?

FBT, or fringe benefits tax, covers any fringe benefits provided by the employer, an associate of the employer, or by another third party who may have an arrangement with the employer. In this case, the third party is the finance supplier. Throughout the lease, the employer is actually entitled to a deduction for lease expenses, if the car is part of a salary sacrifice arrangement, but it also can give rise to a car benefit.

As a vehicle provided through novated lease is considered the employee’s fringe benefit, there is the liability of a fringe benefits tax to the employer. After all, a salary sacrifice arrangement must remain equally beneficial to the employer as a regular salary, to ensure complete transparency and avoid any decisions being made for ulterior reasons. However, as the leased car creates an FBT liability, and since the FBT falls under the obligation of the employer, it usually transpires that the FBT amount resulting from the novated lease is charged to the employee’s post-tax salary. This amount is then remitted by the employer, as required.

The FBT is calculated using the purchase price of the car, which is then used to find the value of the car benefit.

How can you reduce FBT?

If the employee were to contribute towards the running costs of the car from after-tax dollars, the FBT can be reduced, as every dollar reduces the FBT liability- right up to the total amount payable. By doing this, instead of paying the fringe benefits tax rate, you can pay much less.

If you’re interested in applying for a novated lease, make sure you find the right lender. Allcredit is an Australian finance company, dedicated to providing you with the right options to suit your needs and budgets. Call our friendly team today 1300 550 112 , and see how we can help you get further.

Interested in finance? Let us know

Benefits of choosing allcredit for your loan or lease

Choose your own vehicle

The ATO allow you to do a Novated Lease on any vehicle that meets their definition of a motor vehicle, being: Cars, station wagons, panel vans, utility trucks

Fleet Discounts

No more haggling with the dealers, our buying power guarantee’s you excellent fleet discounts on all makes and models of new cars.

Lease Rates

Our Consultants will make sure that you not only get the best price on your lease but use their extensive industry knowledge to guide you.

Fuel

When you take out you allcredit Novated Lease you will be provided an allcredit Motorpass card which is accepted at almost every fuel outlet in Australia.

Vehicle Running Costs

All car maintenance and service items will be budgeted for and included in your allcredit Novated Lease payment.

With your allcredit full maintained novated lease your payments include all of the above

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