Financial Benefits of Novated Leasing
Susan Nicholson, director of product and marketing Asia Pacific at WEX Australia, says more people should investigate the savings compared to traditional ownership.
“Depending on your personal circumstances, novated leasing remains a cost effective way to finance and run your motor vehicle in Australia, ” says Nicholson.
“There are many benefits of novated leasing over and above the aesthetic value of having a newer model vehicle within your reach. For many there are taxation savings and discounts and expenses in relation to the running costs of a vehicle such as fuel, servicing, tyres which can easily add up to thousands of dollars.”
Novated leasing still has a long way to go before reaching saturation in Australia, according to a survey conducted by ACA Research.
“The good news is that means for the end users that the market is more competitive than ever which may give customers access to better deals.” says Nicholson.
Ben Selwyn, account director at ACA Research, shared from the fleets recently surveyed that only 14 per cent viewed novated leases as their preferred means of financing. However at least 40 per cent offered it to employees as part of their package.
For the businesses that do offer novated leases, they typically make it available to just under half of their employees, with managers, professionals and sales workers the three groups who are most likely to have access, says Selwyn.
“Just under two-thirds of businesses prefer to use vehicle finance for their fleets, typically looking at leasing as the preferred option. This comes through in the more detailed results, with finance leases and novated leases making up two of the top three preferred finance options.”
Novated leasing had its 30th anniversary last year, coming into being after the Labor government introduced Fringe Benefits Tax (FBT) in 1986. So it is perhaps surprising the product still has not been adopted more widely by PAYG taxpayers.
And there is debate within the industry on whether novated leasing has reached its peak or if it will continue to grow and take over the role of the traditional company car.
The discussion is being fuelled by IFRS 16 (a change to accounting standards that impacts vehicle leasing) which will make organisations review fleet policies and potentially make them switch to novated leasing for all vehicles. Others believe novated leasing is best marketed as an employee benefit to the people that do not have access to a car as part of their job role.
If an organisation replaces the company car with novated leasing it significantly reduces some aspects of fleet administration. But transferring the ownership to the driver does not outsource the accountability for employees that use the vehicle for work purposes.
Mat Prestney, director at Plumfleet, talks to organisations about the risk associated with different fleet financing options. He believes the understanding of the level of accountability for employees using private vehicles for work has improved in recent years but is still a long way behind global best practice.
“Companies are now identifying and accepting their duty of care for employees and volunteers that drive private vehicles for work purposes,” says Prestney.
“Novated leasing is an option because it provides visibility to the employer in a similar way to a traditional tool-of-trade vehicle. But if this becomes the preferred financing method, businesses will still need to do more to cover their grey fleet risk.”
As an employee benefit there are few others that provide a bigger saving than novated leasing. This is because many own a car and the annual finance, depreciation and running costs add up to more than $10,000 per annum, which many people do not realise.
Unfortunately it is the method used to achieve the savings that appear too good to be true and stop people from investigating further. Also anyone could be forgiven for thinking that a product that involves PAYG, GST and FBT would be complex.