Knowledge is Power!
A novated lease is a three party agreement between a financier, an employee who uses the vehicle and the employee's employer. The financier owns the vehicle, the employee uses the vehicle and the employer deducts the lease costs and the operating costs from the employee's salary before the salary is paid to the employee. For most employers/agencies, the salary deductions are paid to a Salary Packaging Administrator (ASP) who in turn distributes funds to the Novated Lease Service Supplier (NLSP). The NLSP (i.e. Statewide) uses these funds to pay the lease and the operating costs to suppliers. For most employees, the salary deductions (called contributions) are partly before-tax contributions and partly after-tax contributions.
The employer is completely protected from any FBT liability because the Salary Packaging Participation Agreement requires the employee to accept full responsibility for any FBT liability that may be incurred.
Employees who work in FBT-exempt workplaces (such as Legal Aid, Queensland Ambulance Service, QG Air and some parts of Queensland Health may be eligible for an FBT Exemption cap (the "CAP limit") as determined by their Employer (based on the Fringe Benefit Tax Assessment Act 1986, ATO rulings, determinations and interpretive decisions). An Employee should contact their Employer to confirm whether they are eligible for an FBT Exemption CAP.
Queensland Health Employees can read the Employee Information Booklet for further information.
The FBT Exemption Cap is a grossed up taxable value (GUTV) of the ATO-set amount of concessional FBT treatment that an Employee may be eligible for based on their Employer. The cap limit is the maximum amount that can be salary sacrificed without having to make provision for FBT. As an example, if a Queensland Health employee is eligible for an FBT Exemption Cap, the GUTV is $17,000. If packaging items that are not subject to GST the actual dollar amount that can be deducted from the employee's wage is $9,010 per FBT year (figures quoted are accurate as at March 2021).
Employees who work in non-exempt workplaces should not incur an FBT liability if their novated lease has been calculated to provide for FBT under the Employee Contribution Method (ECM). When the ECM is used to set up a novated lease, post-tax employee contributions are calculated and used to offset any FBT that would otherwise be incurred. These funds are also used to meet the cost of the novated lease. Contributing a post tax contribution as part of a novated lease is known as the Employee Contribution Method (ECM). Agency payrolls either use the terminology post-tax or ECM to appear on employee advices to indicate the contribution type being deducted for salary sacrificing a novated lease.
The Salary Packaging Administrator (SPA) must collect any outstanding Fringe Benefits Tax (FBT) liability as a priority over any other payment. Funds within the employees SPA account will be utilised for payment of any outstanding FBT liability. If insufficient funds are available, the SPA will contact the employee who has an obligation to pay any shortfall, or they can draw on funds held in an employees novated lease account.
All taxes, including FBT, charges, fees, administrations fees or other costs associated with the novated lease and the novated lease whether levied against the employee, the employer or others are the responsibility of the employee.
With the lease maturity date approaching it is time to consider options available to you. At the end of your lease term, you may be able to:
* You would be required to trade in your existing car, sell privately or payout the amount owing.
Generally, no!
The reason for this is that the tax savings generally outweigh cost of the lease. Statewide's Registered Tax Advisers can provide objective cash flow analyses to compare paying cash verse renewing the lease for another term or replacing with a new lease vehicle. Please note that these services are outside the scope of the Queensland Government contract and therefore, Employees may choose to utilise or not utilise this service through Statewide.
If you are looking to move on to a new car at the end of your lease term then Statewide would be happy to assist. We are able to source new car prices with fleet discounts and provide assistance with trading in your existing car. We are able to tailor a novated lease package to suit your needs.
If you are considering paying out the residual with another form of finance please consider that novated leases are generally cheaper than paying cash. Renewing the lease for a short term is an effective way to reduce the residual owed at the end.
If you have decided that you no longer want to receive the tax savings associated with a novated lease then you can certainly payout the residual to own the car. Please contact our Lease Maturity Manager at . They will be able to provide you with all the finalisation details you need to payout your novated lease.
To avoid paying unnecessary interest charges it is recommended that you process payment for the residual on the due date. If you choose to payout the lease early there is a possibility that the financier may apply an interest adjustment to your account, slightly increasing the total amount due.
When you pay the residual you will also be required to submit a cessation form confirming the final vehicle details. The cessation date for your novated lease will be either the date you payout the finance or the maturity date (whichever occurs sooner). On the cessation date your fuel cards will be cancelled and any reimbursement claims received after this date will be rejected. It is strongly advised to have any servicing/repairs etc completed on the car and any reimbursement claims submitted before the cessation date you indicate on your cessation form.
These services are outside the scope of the Queensland Government contract. Therefore, Employees may choose to utilise or not utilise this service through Statewide.
For more questions to ask, visit our Knowledge Centre