A car lease is an arrangement usually used with salary packages. It means that the employer pays for the car lease along with various car running expenses from your salary package throughout either pre-tax and post-turnover salary deductions. Car leases have become very popular with both employees and employers, as this form of vehicle financing is very easy to arrange and offers attractive financial returns. However, it also needs to be ensured that there are no miscellaneous costs such as registration and license fees beyond the basic lease agreement.
Car lease arrangements are generally flexible, and there is no binding contractual obligation for either the employee or the employer. Employees can drive their cars free of cost, and the employer has no legal responsibility to compensate them for any injuries or damages to their car. Employers, however, have certain legal obligations to make reasonable and equitable compensation claims on behalf of the employees.
One of the biggest benefits of availing a novated lease for car is that employees would not have to pay less tax on their regular salary while leasing a car. They are only required to pay less tax on the outstanding mileage, the finance charges and the interest. They would also not be required to pay less tax on the amount of advance or payment they get due to a novated car lease. The amount of interest that the employer charges would also be subject to the prescribed interest rate and is also not subject to change irrespective of whether the employee renews the car lease or not.
Employees can negotiate a reasonable car lease option in Australia even though the finance lease does not cover all the expenses such as taxes and other associated costs. The employees can negotiate on various issues like the total mileage covered, the period of interest-free or non-interest free period, the total payback amount and the number of monthly payments they would have to contribute. Some of the employees may also insist on getting a separate document that outlines how they intend to use the vehicle after the end of the lease period
Apart from tax benefits, the employees also enjoy other significant tax benefits in novated lease car agreements. Taxation of business expenditure is important, and most business employers are offering this benefit to offset the income tax that they would otherwise pay. In addition to that, most of the employers in Australia offer tax benefits to the new employees at the time of hiring them. It is important to note that the tax benefits depend on the type of lease agreement entered into by the company and the new employee. A new employee would get the same tax benefits as that of an established employee.
There are also some provisions in novated leasing contracts that allow the employee to purchase the automobile after the expiry of the term. However, this provision should be strictly checked as it could result in a loss to the company. Apart from tax benefits and other provisions, the employees have certain other financial provisions that need to be looked into before signing up for any auto lease agreement. The employees should take due care and diligence while going through the entire contract to ensure they do not get into any future misunderstandings.