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The trend of purchasing a car under a novated lease arrangement is rapidly increasingly across Australia. A novated lease is an agreement between an employee, his or her employer and a car finance company. This type of agreement is generally beneficial to all the related parties.

So, how does a novated lease work? Simply put, a novated lease allows a company to provide an employee with a vehicle which incorporates the lease repayments as part of the employee's total remuneration package. In doing so, the company can satisfy their tool of trade fleet requirements as well as providing greater flexibility and incentives for their employees.

If an employee leases the vehicle, they can request their employer to make the monthly repayments on their behalf from their pre-tax remuneration. The use of pre-tax salary could legitimately cut down on an employee's taxable remuneration leading to significant income tax savings.
The ownership of the vehicle prevails with the employee always. If the employee changes job, the car goes with them, and the novated lease gets transferred to the new employer.

An additional benefit for the employer is that the vehicle is not deemed an asset or a liability thus does not show up on the company's balance sheet. To add to that, the firm is not accountable for the on-going upkeep of the car and it goes when the employee quits the business.

This practice ensures the cars that the company has are well-maintained. Moreover, these cars neither form a liability on the company nor do they become an asset.

This kind of an agreement also provides significant financial incentives in the case of an employee wanting to purchase a car. If an employee leases the vehicle, they can ask their employer to make the monthly repayments on their behalf from their pre-tax salary. The utilisation of pre-tax salary can legitimately reduce an employee's taxable salary resulting in significant income tax savings.
The ownership of the vehicle remains with the employee at all times. If the employee changes employment, the car goes with them, and the novated lease gets transferred to the new employer.

Another advantage for the employer is that the car is not considered an asset or a liability so therefore does not appear on the company's balance sheet. To add to that, the company is not responsible for the on-going maintenance of the car and it goes when the employee leaves the company.

Finance companies generally view novated lease arrangement favourably as the risks involved in lease repayments by an individual are far greater than with a corporate or other company. The finance company, therefore, has greater assurance of payment if the employer makes payments on behalf of the employee.

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By Bobby Karanfilov
Article Source: http://EzineArticles.com/?expert=Bobby_Karanfilov