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A novated lease agreement involves three parties--a finance company, employer and employee. Novated lease agreements occur primarily in Australia in the motor vehicle industry.
Significance
Novated lease agreements allow employees to access and use a car without taking on the legal and financial aspects associated with leasing.
Types
A full novation lease agreement obligates the employer to assume all responsibility for making lease payments for an employee. A partial novation lease agreement involves an employee sub-leasing a vehicle to an employer in exchange for the employer making the lease payments.
Employee Benefits
Novated lease agreements eliminate the need for an employee to file or pay for GST tax obligations.
Employer Benefits
Novated lease agreements allow employers to deduct the lease payments from an employee's pre-tax earnings; this procedure is also called salary packaging.
Considerations
According to the Australian Taxation Office, a clause is normally inserted into the deed of novation that transfers lease payment obligations back to the employee upon job termination.
Source:
Australian Taxation Office: Vehicles Purchased Under Novated Leases
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