Vehicles bought under a novated lease may have goods and services / GST implications. If you are an employer making vehicle lease agreements, you should know if your lease agreement is a novated one and contact a specialist if you need any advice or clarification.
Under a novated lease agreement, the employer takes over all or part of the rights and obligations of the lessee under the lease. The rights and obligations are transferred through an agreement in a deed of novation between the employer, the lessee and the finance company. The lessee is often an employee or an employee’s associate.
The deed of novation often has a clause which transfers the lease obligations back to the lessee upon termination of lease or when the employee ceases employment with the employer. The two types of novation agreement are full or split full novation and partial novation. Under the full or split novation, the employee enters into a lease with a finance company or the employer enters into a deed of novation with the employee and finance company.
When a vehicle is leased from a finance company, the employer can claim a GST credit for the GST in the lease charges, if the vehicle is leased to the employer in the course of his business operations. There may be a fringe benefit where the employer is the lessee of a vehicle which is provided by himself for the private use of the employee or the employee’s associate.
If the employer enters into a deed of novation for GST purposes, he is the buyer of the vehicle from the finance company. The employee is then not considered to be acting as his agent.
Under a full novation agreement, the employer is responsible for making the lease payments and guaranteeing the vehicle’s residual value at the end of the lease. For more information about taxes in Australia, contact a Specialist to discuss your particular circumstances.
Chan & Naylor Group has nationwide offices in Brisbane and Capalaba in Queensland, Melbourneand Moonee Ponds in Victoria, East Perth in Western Australia, and Bankstown, Parramatta, Pymble,North Sydney, and Sydney in New South Wales.