A Novated Lease is a three-way arrangement between an employee, their employer and a finance company to finance a car. A Deed of Novation is created, which transfers the employee’s responsibility for the payment of the lease to their employer for the term of the Deed, or until the employee ceases employment, whichever occurs first. The employer deducts the lease payments from the employee’s pre-tax salary, therefore reducing their Income Tax paid.

The tax benefit of a Novated Lease arises from the concessional Fringe Benefits Tax (FBT) treatment of the vehicle. In addition, all running costs of the vehicle are exempt from FBT, including:

Once your salary package has been implemented by Southgate, a payroll advice will be sent to your employer’s payroll department requesting the appropriate funds to be deducted from your wages and deposited into your employer’s salary packaging account each pay cycle. From this account, Southgate will make the necessary monthly Novated Lease payments to the finance company and payments for vehicle running costs. It is important to note that Southgate will only make payments where there are sufficient funds available in your salary packaging account.

Yes. Depending on the Novated Lease terms, there may be penalties involved for early termination. Generally the earlier you terminate the lease, the higher these penalties will be. This can be further explained and confirmed by the financier.

You can terminate your Novated Lease package at any time by giving Southgate at least 24 hours notice and providing a Motor Vehicle Closing Odometer Reading Declaration that must be completed and signed on the date of termination. This is necessary for accurate calculation of the FBT payable on your packaged Novated Lease.

Your Novated Lease will terminate and your fuel card will be cancelled as of the termination date, and payments in respect to the vehicle lease and running costs will not be paid by Southgate after this date, other than charges already incurred on your fuel card. The Deed of Novation will revert to an ordinary finance lease as of the termination date and you will be responsible for making your monthly lease payments (post tax) to the financier directly or arranging to payout the lease contract. You will be responsible for any vehicle expenses paid on your fuel card(s) that have not yet been billed to your salary packaging account upon termination.

At the end of the lease term, you will be responsible for payment of the lease residual amount. You do not automatically obtain ownership of the vehicle until the residual has been paid. The following four options are available to you:

Note: You cannot use pre-tax funds to pay out any residual amount.

This is a method of salary packaging a Novated Lease, whilst still using the Statutory Formula, that combines pre-tax and post-tax income to provide the optimum tax saving. The purpose of this is to offset the FBT payable by contributing post-tax funds (recipient contributions) towards the taxable value of the motor vehicle.

This method will provide additional salary packaging benefit for most employees, except those on the top marginal tax bracket (from Private Sector or Government employers) or those who are salary packaging a car within their Concession Cap (Rebatable, Charity and Public Health employers). However, these employees can use the RCM where a Novated Lease vehicle is in addition (outside of) their Concession Cap.

There is no RFBA, FBT payable or taxable value of the vehicle when using the RCM.

Southgate uses the Statutory Formula to calculate FBT. This is a commonly used formula for calculating Fringe Benefits Tax where there is not a significant amount of business related travel. This calculation uses the cost price of the vehicle and a 20% Statutory Percentage as a basis for calculating any applicable FBT.

Particular vehicle running costs can be packaged Income Tax free and FBT free under a Novated Lease, as the FBT payable only relates to the base cost of the vehicle, not the vehicle running costs.

A Motor Vehicle Closing Odometer Reading Declaration is an official declaration that determines the number of kilometres travelled by your Novated vehicle in a particular FBT year. Every employee packaging a Novated Lease must complete a Motor Vehicle Closing Odometer Reading Declaration and submit it to Southgate within 5 days of the end of the FBT year (31st March) or when terminating a Novated Lease.

This declaration is required when you terminate a salary package containing a Novated Lease, or where you are disposing of a vehicle that is under a Novated Lease.

Where an employee ceases employment, their Novated Lease reverts back to an ordinary lease and the employee becomes responsible for the ongoing lease payments of the car (post-tax). The employee can then choose to renovate the vehicle with a new employer, subject to the new employer’s agreement. Where a renovation occurs, the base value of the car is reset to the current market value at the time of renovation, which in turn reduces the employee’s future FBT liability, RCM contributions and Concession Cap usage (if applicable).

Using the Statutory Formula Method, the calculation of FBT payable on your motor vehicle takes into account the number of days in the FBT year that the car is unavailable for the employee’s private use. You must state the number of days your vehicle was unavailable for on the Closing Odometer Reading Declaration.

A car is taken to be ‘unavailable for private use’ by an employee during any period when:

While declaring any ‘days unavailable’ will reduce the overall FBT liability or RCM required (as there is no Taxable Value/FBT applicable for the days unavailable), it does not affect the calculation of annualised kilometres travelled. Therefore, you are still required to travel your nominated kilometres, regardless of how many days the vehicle is unavailable.

Associate Leases are similar to Novated Leases, however the major difference is that the employee’s associate is the third party instead of the financier. The associate must own the vehicle exclusively in their own name. Under an Associate Lease arrangement, the employee leases the vehicle from their associate with lease payments based on commercial rental rates. The lease payments received by the associate must be reported as taxable income.

Generally, an employee only chooses an Associate Lease where their associate already holds ownership of the desired vehicle, and their associate is on a significantly lower income bracket.

Southgate can only package an Associate Lease where the associate has an Australian Business Number (ABN).