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13/06/2009 | Pros & Cons of Novated LeasesNovated Leasing is where an employee takes out a lease for a motor vehicle and obtains written permission from the employer to have the lease payments made by the employer while they are working for them.
If the employee leaves their current employer they will then have to incur all the running costs including the outstanding lease payments.
From advice that we have been given the following conditions need to be met for any benefit to be derived from novating a motor vehicle lease:
• the vehicle should be predominately used for private
purposes (eg 80%)
• the employee intends to purchase a vehicle
• the GST must be returned to the employer thus
reducing the cost to the employee’s package
Other issues for employees to consider before entering into a Novated Lease include; -
• fleet discounts currently given to employers may
be passed onto the employee for a Novated Lease
but are at the discretion of the vehicle manufacturer
• uncertainty of the actual value of the motor vehicle
at the conclusion of the lease term versus the
residual value agreed that needs to be paid
• the variability in the cost of running the vehicle from
year to year ie: increasing fuel costs and repairs
• if your employer wants to use the car – you lose
“complete” control over kilometres to be travelled
It is also wise to check the administration and set up fees charged, if there are any restrictions on servicing and maintenance and how much interest is being charged.
As always we recommend that you seek independent
financial advice before entering into a Novated Lease
agreement.
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