Who owns the car under a novated lease?
Salary packaging a car is usually beneficial for all parties involved – you save money on taxes and your employer doesn't have to be responsible for the vehicle. One question, however, still stands out; who actually owns the car in a novated lease?
The answer can change for each stage in the lease period.
Before entering a novated lease
When it comes to a novated lease from Smartleasing, you have a number of options on finding a car. If you don't already have a vehicle, you can find one yourself or let Smartleasing help you source a car that suits your needs. In these cases, whomever you're planning on buying the car from will own it until a lease commences.
On the other hand, you may want to salary package a car but are happy with the one you already own. Fortunately, you are able to make arrangements to use that car for a novated lease.
Under a process called a sale and leaseback, you sell your car to the financier for an agreed-upon amount, Then, you can lease the car from the financier for a period that you choose.
During the term of the lease
Once a novated lease begins, ownership gets a bit trickier. Generally, there are two main parties – the lessor and the lessee. With the three parties in a novated lease, however, ownership, responsibilities and obligations are split.
Though specific details will depend on the conditions set out in each individual agreement, a few things will remain the same in most leases. You will maintain possession of the vehicle and are responsible for keeping it in good working order.
The registration for the vehicle will be in your name, and – if you and your insurance policy allow it – other people may drive the vehicle.
During this time, your employer must make the arranged lease payments by deducting that amount from your salary before income tax is applied.
However, while the lease is ongoing, you do not own the vehicle entirely; it is still owned by the finance company. Once the lease period is up, however, those circumstances could change.
When the lease ends
When a novated lease is up, you have a number of options. If you want to try something new, you can negotiate a new arrangement with a different car. This can be a great way to get some of the latest features available on the market.
If you're satisfied with the novated lease terms and the car, you can refinance the vehicle and still enjoy the benefits of salary packaging.
Of course, if you're happy with the car you've been driving and want to be the full owner, you can choose to purchase it. In order to do this, you must pay the residual value. This is a percentage of the amount that the vehicle was originally financed for.
Residual value for leased assets is set by the Australian Tax Office (ATO) based on the expected life of the item in question. According to the ATO, cars have an anticipated working life of eight years. As such, the residual value will depend on the length of the lease. A lease agreement will stipulate the official residual value, but these are the ATO guidelines:
After one year – 65.63%.
After two years – 56.25%.
After three years – 45.88%.
After four years – 37.5%.
After five years – 28.13%.
As you can see, the residual value will decrease as the length of the lease increases.
To learn more about how to save money with a novated lease, contact Smartleasing today.