Explanation of new car lease contracts – Forbes Australia Consultant

A new lease is a way to finance a new or used car with a salary package. Payments are made from the person’s salary before tax with the approval of the employer.

It is essentially a three-way agreement between the financier, the employer, and the employee, and requires entering into a lease agreement with the financier or bank, as well as a “salary sacrifice” arrangement with the employer to cover repayment payments.

The employer then makes payments to the financier on behalf of the employee, which are withdrawn from their pre-tax paycheck.
If the employee changes jobs, the car goes with him if the agreement can be transferred to the new employer. The employee can also make their own payments directly.

It works like this: An employee who earns an annual pre-tax salary of $70,000, whose replacement rent payments are $10,000 annually, would reduce his or her taxable income to $60,000. That reduces the total amount of income tax paid.

An accountant can help you determine if the new lease fits your personal circumstances. The cost-effectiveness of a new lease depends on the individual’s income, the cost of the vehicle, and ongoing operating costs.

There are two main types of substitute lease agreements – full maintenance And Not maintained.

A fully serviced arrangement includes the rental amount for the vehicle plus any running costs, such as fuel, service, registration, and tires, insurance Roadside assistance in the event of a breakdown or accident.

This creates a single payment that aggregates all vehicle expenses into one payment, which is preferred by some.

A non-held arrangement is only the rental amount for the vehicle and excludes all other costs associated with the vehicle, which the employee will have to fund.

The biggest benefit is paying less taxes, which means keeping more of your paycheck and having a car.

An employee with a junior lease does not need to pay Goods and Services Tax (GST) on the operating costs of their vehicle. The Goods and Services Tax (GST) normally paid on the purchase price is covered by the finance provider, who can claim an input tax credit (a tax paid by a business on acquired goods and services).

With a starter lease, the vehicle can be used for personal purposes – there is no requirement that it be used exclusively for business.

Lenders may be more lenient in approving a new lease, because it is seen as less risky in terms of defaults, because payments come automatically and from the employer.

A new lease is attractive to employers because if their employee leaves, they will take the car and lease obligations with them, and it may be less effort than managing a fleet of company cars. It may also reduce the company’s payroll tax liability, because their tax-reportable salaries have decreased.

The new lease contract is related to the employee, not the employer. If the employee resigns and moves to another company, the new employer must agree to facilitate the agreement. Alternatively, the employee can make payments as they would with a standard lease agreement. This will be the default until a new employer is found.

The employer must agree to enter into a starter lease arrangement with its employees.

The leasing company will be more lenient in decisions to approve new leases than they would be with a standard lease. The risk of default is lower, because the payments come from the employer before the salary is paid.

What happens at the end of the lease?

At the end of the new lease, you typically have three options: pay the remaining value to take ownership of the vehicle, refinance the remaining value to continue using the vehicle, or exchange the vehicle for a new model by entering into a new lease arrangement.