If your employer has set up a novated lease, or is thinking about setting up one for you, you’re going to have the chance to drive around in a nice new set of wheels – and we hope that you enjoy doing this. Once all the paperwork is signed and everybody involved in the deal has shaken hands (the finance company, the car dealer, you and the employer), you’ll drive home and park that car in the garage. When you talk about that car, you are probably going to refer to it as “my car”. After all, it’s the car you use to do the grocery run, the school run, your commute to work and a few trips to the countryside in the weekends. But is it really your car?
Technically speaking, no, it’s not yours. Yes, you’re the person who uses that car, and you can use it however you like (within reason – don’t go doing anything silly or illegal with it, of course). However, on paper, you’re not the owner. Instead, the owner of the nice shiny new car sitting in your garage is the property of the finance company, as there’s money owing on the car. However, your employers are the ones making the repayments for your car instead of putting that money into your pay packet and putting you into a new tax bracket.
What About At The End Of The Novated Lease Period?
This is all very straightforward for most of the term of the lease. However, novated leases aren’t set up until the stars fall from the sky and the world stops turning. It’s set up for a finite period, usually measured in years. It’s after that, the question of who owns it can be up for debate. The good news is that you’ve got options.
The first option is that you can purchase the car you like, which is great if you really like that particular vehicle. Here, you have to pay the “residual value”, which is what the car is deemed to be worth once the lease comes to an end. What the residual value is in actual dollar terms is one of the things that is agreed on when the novated lease is set up.
The other option is that you can extend the period of the novated lease, which means that you keep driving the car that you want under similar terms as you have done before. You can do this with your old faithful set of wheel, especially if you really like that car, or you can take the chance to set up a new lease with a new vehicle. In fact, if you have heard something about the Australian government’s scheme to push EVs by creating exemptions to fringe benefit tax, you’d better be in quick if you want to set up a novated lease with a plug-in hybrid (PHEV), as this exemption only applies if the lease is set up before the end of March – that’s fewer than 20 days away (however, EVs are still exempt).
What If I Leave My Job?
However, these options assume that all is going swimmingly with your employer and that you love your job (well, most of the time – we all have days we hate our jobs!). If, however, things are going sideways and you end up not working for that company any more (you know, the company that actually owns the car involved in that novated lease), then things can get a bit trickier. You need a set of wheels, the repayments still need to be made Now what happens?
In this situation, you have the same basic options as you do when a lease ends: you can pay the residual value (which is sometimes called the “balloon payment”) and take over the full amount or you can take over the lease payments yourself, rather than your ex-employer handling this. You can also see if your new employer will also offer you a salary sacrifice deal. Which of these is best for you is up to you and your specific situation, and have a chat to us if this is the situation for you.
In fact, if you have any questions about novated leases, please get in touch with us and we’ll answer them. We get that novated leases can be difficult to understand if you’ve never been involved in one before, and we want to make sure that it ends up being the benefit you and your employer hope it will be.