A novated lease residual value is a salary packaging arrangement in which you package your vehicle’s operating costs as part of your salary sacrifice agreement. These leases are advantageous because they don’t require GST and allow you to package all your operating costs, including maintenance, in the same salary sacrifice agreement. In addition, because a novated lease has a fixed residual value, you can quickly negotiate this amount and get a lower repayment than what you’re currently paying.

novated lease residual value	novated leases are a type of salary packaging agreement

While salary packaging is not for everyone, it can be advantageous for many companies and may even be an attractive benefit for some employees. In many cases, salary packaging can help companies attract the best talent and reduce overall costs. One example is Stratton, a company founded by Rob Chaloner, Managing Director. Rob is passionate about finding smarter ways to purchase cars and is working to disrupt traditional car markets.

A novated lease allows employees to choose any car they want – not just the company car. The employee pays for the lease rental, registration and insurance, and maintenance costs. The employee pays most of the vehicle costs through salary sacrifice from their pre-tax salary. This arrangement is also beneficial for the environment since it reduces carbon emissions. However, it is crucial to understand the tax implications of salary packaging before taking the plunge.

they eliminate the need for GST

The Australian Tax Office has regulated that a novated lease must have a residual value at the end of the lease period. This residual value is a percentage of the vehicle’s original purchase price. Therefore, a novated lease that does not include GST can result in a lower tax bill for you. In addition, many Australian leases are also GST-exclusive, which is advantageous to both parties.

However, some people still worry about balloon payments and the GST burden.

A novated lease allows employees to benefit from salary packaging while avoiding income tax and FBT costs. In addition, while the employee pays tax on the vehicle’s taxable value, the lessor is not liable to pay GST on the residual value. Therefore, a novated lease with a residual value can reduce a leaser’s liability by eliminating the need to pay GST on the residual value.

they allow you to package all the operating costs of your vehicle as part of your salary sacrifice agreement.

You can often save money by combining your taxable income from salary sacrificing and the operating costs of a car with your employer’s novated lease residual value. The term of a novated lease can range from one to five years, so it is flexible enough to allow you to package multiple vehicles under your salary sacrifice agreement. However, it would be best if you remembered that you wouldn’t be able to drive the vehicle after the lease period. As with any other salary sacrifice arrangement, you must get the employer’s permission and be sure they know your goals. You may need to lobby for the benefits if your employer does not offer salary packaging.

Another benefit of novated leases is that you can claim GST on all operating costs. It means the employee pays less GST on their vehicle than if they bought it directly. The employee can also claim GST associated with the residual value as a business expense. However, a novated lease will always cost more than the FBT benefits that the employee can claim, so the benefit of salary packaging is usually outweighed by the additional costs associated with paying FBT.

When negotiating a novated lease, it’s crucial to understand the “residual value” and how to negotiate it. In a nutshell, residual value is the difference between the selling price and the residual value and is a critical part of the lease negotiation process. Another term you should familiarize yourself with is The Money Factor, the amount of interest a lender applies to the lease.