A novated lease is a special kind of motor vehicle lease that is common in Australia that allows employees to operate personal motor vehicles in a tax and cost effective manner when compared with more traditional forms of leasing. This article or section should include material from Tenancy agreement A lease is a contract conveying from one person (the lessor) to another person (the lessee) the right to use and control some article of property for a specified period of time (the term), without conveying ownership, in exchange for... Employment is a contract between two parties, one being the employer and the other being the employee. ... In economics, cost-effectiveness refers to the comparison of the relative expenditure (costs) and outcomes (effects) associated with two or more courses of action. ...

In the UK, a novated car lease is a car lease which has been 'transferred' to a third party with the consent of the lessor, the original lessee and the prospective lessee. The transfer of liability for the lease, between two legal entities, is normally covered by tripartite contract, UK based leasing companies have different methodologies, conditions and processes. Swapping car leases is a relatively new phenomenon in the UK although the market for novating leases is now well established in the USA.

'Novated' refers to an agreement between the employer, the employee and the financier of the vehicle, whereby the employer typically agrees to meet finance lease payments and vehicle running costs while the employee remains employed. In return, the employee 'sacrifices' a portion of their salary to cover the cost of the finance. If the employee ceases employment with that employer, they retain the vehicle, but then become responsible for all leasing and operating costs. The arrangements however may be re-continued with a new employer.

There are two types of Novated Leases, Novated Finance Lease, which means that at the end of the lease there is a residue value (similar to a balloon payment) plus GST, this is payable by the employee to the Australian Tax Office. Some are fully maintained which includes all the running expenses of the vehicle or just the finance amount. The second type of lease is called a Novated Operating lease which means at the end of the lease the employee simply hands the vehicle back to the leasing company. There is no residue value. This is also fully maintained which includes all the running expenses of the vehicle.

Under these arrangements, certain benefits arise for both the employee and the employer including:

For the employee

• possible significant income tax savings
• savings on GST that would normally be incurred on vehicle expenses
• Access to volume discounts if the employer has many vehicles under this scheme
• more flexibility in the choice of a car compared to a 'company car' arrangement
• can be transferred to next employer

Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income... The GST (Goods and Services Tax) is a value added tax of 10% on most goods and services sold in Australia. ...

For the employer

• A way to effectively increase employees' salaries with no or minimal cost to the business
• A more cost effective alternative to operating a fleet of company vehicles
• employee vehicles are 'off balance sheet'
• Access to GST input credits for vehicle expenses

See also

• Employee benefit
• Fringe Benefits Tax

This article needs additional references or sources for verification. ... Fringe Benefits Tax (FBT) is a taxation of most, but not all fringe benefits, which are generally non-cash employee benefits. ...

External links

• Novated leases questions and answers from the Australian Taxation Office