A fully maintained novated lease is a type of car finance that combines the cost of the car and its running expenses into a single monthly payment. This agreement involves an employer, employee, and finance company, where the employee leases the car from the finance company and the employer takes on the obligations of the lease agreement. The employer then pays the monthly lease payments on behalf of the employee and provides the car as part of their salary package.
The running costs included in the lease payment typically cover servicing, maintenance, tyres, fuel, registration, insurance, accident management, and other tax costs. The lease term is usually three years, and at the end of the term, the equity in the car belongs to the employee. The employee chooses the vehicle, purchases it, and the lease agreement is in their name. As part of the salary package, a portion of the employee's earnings is salary sacrificed in exchange for the car. The lease portion is deducted from pre-tax earnings, and PAYG tax is calculated after the lease portion has been deducted.
A fully maintained novated lease can reduce the employee's income tax and save them GST costs on the purchase of the car and its running expenses. This type of car finance is beneficial for employers as it offers a flexible salary package without extra cost to the business.
If you're interested in a fully maintained novated lease, talk to your employer to see if they offer salary packaging and learn about your options.
