Novated Leases for Employers
If you’re thinking about offering a novated lease as an incentive to your staff, or you’ve had some employees asking about novated leasing, you might be wondering what’s in it for you.
In addition to making your workplace more desirable to potential employees, there are a number of benefits involved in novated leases for you as an employer. There are also a few things you’ll need to be aware of. We weigh up the benefits and touch on all the things you need to know.
Benefits of Novated Leasing for Employers:
It rewards your staff and costs you nothing. At no company cost novated leasing enhances your value proposition by effectively increasing the value of your employment package offering.
Improves you bottom line with reduced payroll tax costs. Novated leasing is not a reportable fringe benefit and as such reduces your total taxable wage base which in turn reduces your payroll tax obligations and workers compensation premiums.
If the employee leaves the company, the car goes with them. This means the employer has no asset risk and is not liable for future repayments. It also means that you don’t need to worry about having a bunch of excess vehicles at the end of the lease or termination of employment that you need to reallocate or dispose of. No more paying for cars that your company doesn’t need.
3. Attract quality employees. It can be hard to come across good quality employees, and sometimes, it’s even harder to retain them. More money will always be an effective driver for attracting and retaining quality employees and high value financial benefit will give you the competitive edge. Novated leasing is effectively an additional tax free allowance allowing employees to extend their salary. Your employee is also entirely entitled to choose their own car – another attractive benefit.
Increase productivity. Looking out for your employees best interests ultimately serves in the comapanies best interest with higher productibity and grreater retention rates.
4. Take out the hassle of having to maintain a fleet of company cars. Your employee will own the vehicle which means you don’t have to manage a company fleet, waste time with log books, organise and pay for maintenance and you don’t need to record the car as an asset or liability. You also don’t need to worry about on balance sheet reporting since there are no ongoing liabilities or equity accumulation for you. Breathe a sigh of relief as you free up a lot of time and energy.
What else do you need to know?
Of course the first thing you need to be made aware of is that you are responsible for making payments. These payments are made straight from your employee’s pre-tax income.
Fringe Benefits Tax
You, as the employer, will be responsible for paying Fringe Benefits Tax. This is because novated leasing is a form of salary packaging. It is calculated on the value of the car as well as the number of kilometres which are travelled each year. Of course this can be charged back to your employee through additional pre-tax salary deductions. Make sure you check with a financial adviser about the implications FBT could have on your company.
Whilst you don’t need to worry about log books and recording the cars as assets or liabilities, you will still need to keep sufficient records in order for your FBT liability to assessed. For example, you’ll need to hang on to invoices relating to the arrangement for at least five years from the date of the transaction.
So what are the risks and disadvantages?
You might be concerned about the risk involved for you. The best part about a novated lease is that there is no risk for you. If the employee leaves the company, whether they resign; are fired or are made redundant, the lease will become their responsibility effective immediately. This will be a term in the Deed of Novation you will have signed when entering into the arrangement.
What Costs are Involved?
Actually, for you there are no costs involved. As we’ve said – the repayments are made from your employee’s pre-tax income. You won’t be liable for early termination fees if your employee leaves the company. Plus, at the end of the term of the lease the employee will be responsible for paying out the residual value and deciding what to do with the car.
Additionally, at tax time you can deduct the payments made under the agreement. As long as you’re registered for GST, you can claim an input tax credit on the GST paid under the lease.
Does Size Matter?
You don’t have to be a giant company to be able to offer your employees the benefit of a novated lease. Novated leasing is now available and easily accessible for companies of all shapes and sizes.
If you’re thinking about setting up a novated lease scheme for your employees, we strongly recommend having a chat with your financial adviser to make sure that it will be right for you and your business. For more information, contact us today.
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