Novated Lease

With a novated lease the employee, employer and finance provider sign a Novation Agreement, whereby the employer agrees to take on the obligations of the employee under the lease.

The monthly payments become part of the employee's pre-tax salary.

Should the employee leave his or her employment for any reason, the Novation Agreement ceases and the payment obligations revert to the (now ex) employee.

The financier retains ownership of the vehicle at the end of the leasing term, when various options are negotiable.

As the employee makes repayments by salary reduction, it follows that their taxable income is reduced, possibly even moving to a lower tax bracket.

The amount of a novated lease is the invoiced cost of the vehicle ( possibly plus extras such as lease term insurance ) less G.S.T., as the financier is entitled to claim the Input Tax Credit (I.T.C.).

At the end of the term, the financier typically offers the Lessee a number of options. These can include payment of the residual plus G.S.T., return the goods to the financier (the lessee is responsible for any shortfall after disposal of the asset) or if available, refinance the remaining balance for an additional term.

LINKS

The Australian Taxation Office has some excellent web pages -
Novated leases questions and answers.
GST essentials.

Further reading, a 36 page guide in pdf format,
GST for small business  bytes