OPPORTUNITIES ABOUND IN NOVATED LEASING

Recent research shows that the novated leasing market in Australia has plenty of room for growth.

Fleet sales represent 50 percent of vehicle sales, but ACA Research conducted a survey that found just 14 percent of fleets regarded novated leases as their preferred means of financing. At least 40 percent offered it to employees as part of their package, but to less than half their staff.

ACA Account Director, Ben Selwyn, said managers, professionals and sales workers are the three groups most likely to take advantage of a product that benefits both employee and employer.

“Just under two-thirds of businesses prefer to use vehicle finance for their fleets, typically looking at leasing as the preferred option. This comes through in the more detailed results, with finance leases and novated leases making up two of the top three preferred finance options,” he said.

Novated leasing has been around for more than three decades, since the introduction of the Fringe Benefits Tax (FBT) in 1986. However, the majority of PAYG taxpayers have not embraced it.

Traditional company cars still rule the roost, although there is no reason why this should be so other than long-standing practice.

A change to accounting standards known as IFRS 16 will make organisations review fleet policies and potentially make them switch to novated leasing for all vehicles. Another theory is that novated leasing is best marketed as an employee benefit to those people who do not have access to a car as part of their job role.

If an organisation replaces the company car with novated leasing it significantly reduces some aspects of fleet administration. Transferring the ownership to the driver does not, however, outsource the accountability for employees who use the vehicle for work purposes.

Understanding the level of accountability for employees using private vehicles for work has improved in recent years but is still a long way behind global best practice.

Benefits to employees include:

  • Significant income tax savings. Salary packaged vehicle costs are paid from pre-tax income. Paying with pre-tax dollars means a lower rate of tax on the benefit than paying for the running costs of the vehicle using after tax income.
  • A car that can be used 100% of the time for personal use and still save users tax.
  • Freedom to select the vehicle of choice. This is because a salary packaged vehicle is not part of the company fleet.
  • Nearly every vehicle expense can be covered in the salary package, including fuel, servicing, tyres, comprehensive insurance, registration and even car washing. Users save on tax for these as well as for the car itself.
  • Salary packages benefit from fleet pricing, which is heavily discounted in almost all cases.
  • ATO and Government compliant
  • NO GST on the price of the car in the package means savings of up to $5,224 off the purchase price.
  • Absolutely no FBT for either the employee or the employer.
  • A new car every time you want one, for a fraction of what it usually costs.
  • No records or log books to keep. All bills for the car, such as fuel and servicing are paid.
  • A Novated Lease is both cost and tax effective. You save money.
  • The lease and vehicle are portable and can be taken from one employer to the next.
  • Users benefit from any equity built up in the vehicle during the term of the lease. Any profit realised on the sale of the vehicle at the end of the lease is tax-free.
  • Lease repayments are fixed for the term of the lease.
  • Lease terms are flexible, from 12 to 60 months.

Employers benefit via:

  • The ability to provide more flexible remuneration to employees at little or no cost to their business.
  • Significant savings of time and money compared to the administration of a company fleet.
  • Elimination of the residual-value risk of a company fleet.
  • If an employee leaves, the employer is not responsible for the vehicle and is not left with vehicles surplus to requirements.
  • Vehicles provided under a Novated Lease are ‘off balance sheet’, i.e. neither an asset nor a liability.
  • Reduced employee on-costs, such as Payroll Tax and WorkCover premiums.

Few employee benefits provide greater savings than novated leasing. The annual cost of owning and running a car can total more than $10,000 once you factor in finance, depreciation and running costs.

Despite all these advantages many people think the benefits of novated leasing are too good to be true, which probably accounts for the low uptake rate. The opportunity is, however, there for employees, employers and car Dealers to all benefit.

Are you selling those benefits as well as you could?

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