Finance Lease

The lease rental agreement, sets out the residual value to reflect the equipment's value at the end of the term. The equipment is owned by the finance company,the Lessor. As long as the equipment is used in connection with assessable income, the lease rentals are tax deductible to the leasee,. At the end of the lease the leasee can make an offer to purchase the equipment from the finance company or trade it in on a replacement or return it or to extend the lease for a further term.
TAX IMPLICATIONS: The GST is claimed by the lessor so it does not impacts the lease amount. The residual is also financed in this case.
This is a solution for companies using the vehicle for business, so up to the luxury car limit,$57,123 , the monthly lease amounts are fully deductible.

Novated Car Leasing.

It is a great salary packaging and tax saving opportunity. A win for employees and employers alike, seeking a solution to maximise the take home pay of the employees and to attract employees to the employer. Once used exclusively for executive salary packaging, it has become more broadly used by employees especially with the increase in salary threshold at which the highest marginal tax rate is applied.

The employee enters into a novated lease agreement, Deed of Novation, between the lessor and his employer. The lease is fixed rate loan with up to 100% of the car value can be provided as the loan. The claims for monthly lease costs are submitted to the employer who deducts it from the employees pretax salary. This will reduce employees tax liability.

Residual:  At the end of the lease the employee has several options. The residual at the end of the lease is the responsibility of the leasee, they have the benefit of selling the vehicle and paying out the residual. They don't pay capital gains on any profit they make similarly they can't claim any loss against their income. See the graphical representation of diminishing value of the car over time in the Insurance page. Selection of the make and model and term of the lease is important in avoiding capital losses.
TAX IMPLICATIONS: GST is collected by the leasing company and in turn it reduces the financed amount. Similarly the GST on products and services used in maintaing the car is claimed by the leasing company further reducing the costs required to be deducted from the employee pre-tax salary. If the employee uses the car for private use then FBT will have to be considered. The Fring benefit tax (FBT)value of the vehicle has to be determined. See ATO Calculator .
This tax can be minimised with employee after tax contribution (ECM) to the maintenance of the car.
Why use after tax dollars to reduce FBT?. The FBT is charged at 46.5% rate but your tax rate may only be 30%. So your total tax can be reduced while getting the best out of your salary package.

Fully Maintained Novated Car Leasing

This goes a step further then above, here in addition to the lease rental, all the on road costs are budgeted for and the fleet management company will claim against the employees monthly pretax income. This has the affect of reducing the tax paid by the employee. As the fleet managers have significant buying power for everything from fuel to tyres the money is efficiently spend.

A fully maintained lease can save an employee , say on a salary of $51000 and driving 25,000 KMS up to $3,000 p.a and more for high income earners. A further amount of up to $5,000 can be saved by buying the car through our dealer network.
Residual:  As for, above, novated lease

TAX IMPLICATIONS: The employee may be assessed for FBT which can be reduced by the ECM method. The fleet manager will adjust the budget so that a minmum of FBT would be incurred.

Contact us to get our specialist in novated leasing to speak to you.

Operating Car Lease

There is no residual to worry about and the vehicle returned to the lessor at the end of the leasee. The lease payments are based on the cost to the lessor for cost and maintenance of the car. The leasee does not have to maintain the car. this allows the asset to be kept "off the books"and conserve the capital. Other advantages include:

No technology obsolescence
Upgrade to new equipment
Easier to obtain management approval as it is not a capital expenditure.
Easier to account for as there is only the one invoice.
The short term operating lease is especially advantageous for short term employees or projects  and contract workers.

TAX IMPLICATIONS: The leasee can claim the lease amount for business use of the vehicle.