Top 5 Tax Benefits of Novated Leasing for Businesses
Offering novated leasing as part of a salary package can provide significant benefits for businesses beyond just improving employee satisfaction. Novated leasing is not just for big organisations, small and medium-sized enterprises have a lot to gain from rolling out novated leasing to their employees. It can also result in tax advantages that help reduce costs for both employers and employees.
5 Best Tax Benefits of Novated Leasing
Here are the top 5 tax benefits of offering novated leasing to your employees:
1. Reduction in Payroll Tax
One of the key benefits of offering novated leasing is the potential reduction in payroll tax. Because the lease payments are deducted from an employee’s pre-tax salary, their taxable income is lowered. This reduction in taxable income can, in turn, decrease the employer's overall payroll tax liability.
- Why It Matters: For businesses with a large workforce, even small reductions in payroll tax per employee can add up to substantial savings. This makes novated leasing an attractive option for companies looking to optimise their salary packaging arrangements and lower tax obligations. For smaller organisations savings in payroll tax can be very valuable especially in the current high inflation environment.
2. Fringe Benefits Tax (FBT) Exemptions for Electric Vehicles
Recent changes in Australian tax law have introduced Fringe Benefits Tax (FBT) exemptions for certain electric vehicles (EVs) that fall below the luxury car tax threshold (currently set at $91,387 for 2024-2025). This means that businesses offering novated leases for qualifying EVs can save significantly on FBT payments.
- Why It Matters: FBT is typically a major consideration when offering novated leasing, as it can add to the overall cost for employers. Oftentimes either a portion or all the FBT component is passed on to employees.
The FBT exemption for eligible EVs reduces this financial burden, making it easier for businesses to support employees who want to transition to greener vehicles. This not only leads to tax savings but also aligns with corporate sustainability goals.
3. GST Savings on Vehicle Purchase Price and Running Costs
When a business offers a novated lease to employees, GST is not payable on the purchase price of the vehicle. This is because the business can claim GST credits on the lease payments. Additionally, GST is not charged on the running costs (such as insurance, registration, and maintenance) that are bundled into the lease package.
- Why It Matters: These GST savings reduce the overall cost of the lease, making it more affordable for employees while benefiting the business through the credits claimed. The business can pass on these savings to employees, making novated leasing a more attractive option for them.
4. Enhanced Employee Benefits Without Increasing Costs
Offering novated leasing can be a cost-neutral benefit for businesses, as the lease payments are taken from the employee’s pre-tax salary. This means that businesses can enhance their overall benefits package without having to allocate additional funds from their own budget.
- Why It Matters: By providing salary packaging options like novated leasing, businesses can attract and retain top talent. This benefit can help differentiate an employer in a competitive job market without impacting the company’s financials directly. The tax advantages help make the package even more appealing to employees, which can improve employee satisfaction and reduce turnover.
5. Potential for Depreciation Benefits
In some cases, businesses may be able to claim depreciation benefits on vehicles under a novated lease, depending on the specific structure of the leasing arrangement and ownership details. This can provide a further way to offset taxable income.
- Why It Matters: While the specifics can vary based on the type of lease and who holds ownership, understanding how depreciation works can allow businesses to better manage their tax position. Consulting with a tax advisor can help businesses determine if this benefit applies to their situation and how to maximise it.
Tax-Efficient Benefits for Employers
Offering novated leasing to employees is not only a great way to enhance your company's benefits package but also a smart strategy for reducing tax obligations. From payroll tax savings to FBT exemptions for electric vehicles, there are multiple ways that businesses can benefit.
By partnering with a reliable novated lease provider, businesses can ensure a smooth implementation process that benefits both the company and its employees.
If you’re ready to explore how novated leasing can reduce costs and improve employee satisfaction, CarBon Novated Leasing can provide tailored solutions that maximise tax benefits. Contact us today to learn more about how we can help your business save while offering an attractive perk to your team.
