| How it works |
Term: The term of finance agreement
can be from 1 - 5 years and must be in accordance to Australian
Taxation Office Guidelines (ATO).
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Novation: The employee then novates
the lease to their employer, who assumes all the employee's
rights and obligations under the lease, including responsibility
of meeting the lease payments, normally deducted as part
of the employee's salary package.
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Deposits: Deposits are not required.
The full purchase price must be financed.
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Owner of the vehicle: The contract
is in the name of the employee who remains the registered
owner throughout the lease and keeps effective control of
the vehicle at all times. If the employee leaves the company,
the vehicle remains with the employee. In this situation,
generally the employee takes over the payments or gets another
employer to make the payments. This means, the original
employer is not left with an unwanted car and the employee
keeps the vehicle.
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Residual/Balloon: You must have
a residual payment as the last payment of your finance agreement
according to ATO Guidelines. This usually varies between
37% to 75% of the cost price of the vehicle). This amount
usually represents the approximate value of the goods at
the end of the lease. A residual payment allows for lower
monthly payments and leaves you with more working capital
to run your business. You may refinance this residual value
at the end of the contract (depending on the finance company).
The following range of residual values may be a useful guide
for Finance Lease transactions, which fall within the guidelines
issued by the ATO:
| Terms |
Residual Value |
| 1 Years |
65.50% - 75.0% |
| 2 Years |
56.25% - 65.00% |
| 3 Years |
47.00% - 55.00% |
| 4 Years |
37.50% - 45.00% |
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Accounting benefits: The monthly
rental payments are 100% tax deductible, providing the goods
are solely used for business purposes. The amount financed
is exclusive of GST (the finance company covers this cost
as they are purchasing the goods for the employee). The
monthly rental payments are subject to GST and stamp duty.
The residual value and early termination are also subject
to GST. Employers can attract employees by offering a vehicle
as part of a remuneration package, without having it appear
on their balance sheet. However you may be liable to pay
fringe benefits tax (Please refer to the ATO at: www.ato.gov.au/businesses for further information).
You should always seek advice from your accountant on the
rules and how they apply to your particular business and
equipment.
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