New Australian Tax Law Boosts Interest in Novated Leases

Recent changes to Australia’s tax laws exempting electric vehicles (EVs) from fringe benefits tax (FBT), most likely will mean a boom for the novated leasing industry, according to Australian online news resource Global EV Fleet News.

Eliminating FBT on certain EVs is aimed at boosting adoption of EVs in the country, particularly among business fleets, by making them more affordable compared with traditional fuel propelled vehicles.

The measure will also fuel an increase in everyday employees taking up salary sacrifice arrangements involving EVs or of novated leases for their first or new electric vehicle, reported Global EV Fleet News.

“There is a lot of excitement in the industry,” said Frank Agostino, managing director at salary packaging and novated leasing specialist Fleet Network, referring to the many articles on novated leasing appearing recently in mainstream and business publications. “It’s growing some legs. Our reputation is growing as a result of this.”

According to the Global news group, consumer publications are publicizing “incredible savings” an employee may receive through novated lease offerings from their employer.

Savings are phenomenal in switching to an electric vehicle, Agostino told Global EV Fleet News. Under the new tax rules, applied via a novated lease, an employee will be able to get a Tesla 3 or a Tesla Y for the about the same outlay as a Mazda CX5, in the vicinity of $240 a week.

Novated leases are almost exclusively used in Australia as part of an arrangement for providing the use of a motor vehicle by an employer to an employee via salary packaging.

Novated leasing, as Global EV Fleet News explained, is a” three-way arrangement in which an employer agrees to pay the employee’s vehicle finance and running costs to a leasing provider from the employee’s pre-tax salary.

“The three parties sign a deed of novation, under which the employer takes on all, or some, of the employee’s obligations in their separate lease agreement with a finance company. The deed of novation also guarantees a residual value of the vehicle at the end of the agreement, which the employee can pay to take over ownership, and any future maintenance and other obligations, of the vehicle.”

Agostino recommends employees in the market for a new or used vehicle consider the novated lease and salary sacrifice option if their employers offer it.

“The best way to sell it is to say, ‘Let’s have a look at a novated lease and how that looks on the car that you’ve got right now,’ and 99 times out of 100 the novated lease will beat the current situation,” said Agostino.

He added, “Due to the new tax policy, there has been a significant shift in the way people think about electric vehicles.”