End of Novation Period - What Options? Part 4

Say you no longer want the car and simply want to hand it back. There is an option for you. Note: This option is very rarely used as it does not favour the driver in any way.

Option 4 - Hand the Vehicle Back

If the vehicle is handed back to the financier at the end of the Novated Lease period, the financier then auctions the vehicle for the best price offered (no reserve).

What Happens after the Auction?

The money raised from the sale (less costs) is used to pay out the residual amount plus GST of your Novated Lease. If there is a difference between the net funds (from the auction) and the residual amount plus GST, this amount is treated in either of the following ways:

a. Any shortfall between the net sale price and the residual amount plus GST is still the responsibility - and liability - of the driver. (you still owe them money!)

b. Any surplus between the net sale price and the residual amount plus GST is retained by the financier. (They keep it!!)

Summary
You do have a variety of options available to you at the end of a Novated Lease. You can keep the car or not. Whatever option you choose, remember that the residual value must be paid.

End of Novation Period - What Options? Part 3

If you don't want to keep the car you novated - maybe you want to move on to bigger and better things - you have another option at the end of your Novated Lease period.

Option 3 - Upgrade the Vehicle

Under this option you can trade in your existing vehicle and upgrade to another vehicle. A new Novated Lease is then set up for this replacement vehicle.

Two points need to be made here in regards to the trade-in amount of your existing vehicle:

a. If the trade-in value is less than the residual value plus GST on your existing novated lease, then the short fall is still due and payable by you (the driver) to the financier.

b. If there is a surplus amount between the trade-in value and the residual amount plus GST, then this surplus is paid directly to you (the driver) and cannot be used to reduce the purchase price of the replacement vehicle.

End of Novation Period - What Options? Part 2

If you want to keep the car you've got a Novated Lease on but can't afford it at the end of the lease, you might consider option 2.

Option 2 -Refinance the Residual Amount

If the driver wishes to retain the vehicle but can't afford the residual amount plus GST, he/she can arrange to have this amount refinanced over a further period - again Salary
Packaging this new Novated Lease from their salary.

End of Novation Period - What Options? Part 1

At the end of the novation period, the agreed residual value plus GST needs to be paid to the financier.

There are four options available to you.

Option 1 - Offer to Purchase the Vehicle

If the driver wishes to keep the vehicle, he/she makes an offer to purchase it from the financier for the agreed residual amount plus GST. This amount has been pre-determined and accepted by both parties in the initial contract. The offer is generally accepted by the financier. Funds are transferred to the financier and clear title of the vehicle is then passed to the driver.

"Vehicle Salary Packaging - How Can it Save You Money?" - Summary

Putting it All Together
We've talked about the three ways of saving money when you salary package a vehicle via a Novated Lease. You can save money on:
- the purchase price;
- on GST; and
- on the salary packaging.
Now lets put it all together with a realistic example.
Say Mr. A. Person wants to buy a Ford Focus TDCI (Hatch) with a recommended retail price (On Road and with accessories) of $31,800.00.
The Novation company, with their access to fleet discounts etc. is able to purchase the car for $28,100.00.
Saving 1: $3,700.00
The Tax Invoice price for the vehicle of $28,100.00 includes GST of $2450.00. This GST is claimed by the finance company as an Input Tax Credit. (So is not included in finance contract.)
Saving 2: $2450.00
By Salary Packaging the vehicle under the Employee Contribution Method your net take home savings are approximately $4135.00 per year.
Saving 3: $4135.00 x three years = $12,405.00
Total Savings: $18,555.00
When you analyze a Novated Lease agreement the savings are quite considerable. Why would you go out and buy a car yourself - paying the total price and putting a great deal of your savings into the purchase - if you are able to novate one? The more I learn about this, the more I'm convinced its the way to go.

"Vehicle Salary Packaging - How Can it Save You Money?" - Part 3

Saving Tax
The third way to save money when you salary package a vehicle via a Novated Lease is through the effect it has on:
- reducing the income tax you pay: and
- the subsequent increase in your take home salary.

By Packaging the operational costs as well, the savings can be quite considerable.
In the above example (Quote dated 17/07/08) savings could be as much as $4,775.34 each year - totalling approximately $19,000.00 over four years!

*Table provided by Supanova shows an example of possible annual savings for this particular scenario.

"Vehicle Salary Packaging - How can it save you money?" Part 1

Saving on the Purchase Price
There are three main ways to save money when you salary package a vehicle via a Novated Lease. The first way of saving money is on the purchase price of the vehicle. Some employees will be able to access additional fleet discounts normally only available to corporations with large fleets of vehicles. This discount is available to you because the account manager at the novation company can often buy at fleet prices as a result of the large amount of business he puts the way of car dealerships. The discount will depend on the quality of the novation company you choose and the type of car.

What Does the Word 'Novation' Mean?

Well I'm glad you asked... According to the Macquarie Dictionary, the word 'novation' is a law term and means:

...'the substitution of a new obligation for an old one, usually by the substitution of a new debtor or of a new creditor.'...

In terms of a novated lease this means that the employer - through the process of salary packaging - packages the employee's financial obligation to lease his car as part of his salary in pre tax dollars. Thus the original Financial Lease Agreement becomes a Novated Agreement.

What Types of Cars Can You Novate?

A broad range of cars can be novated.

You can novate a new car - either sourced by you or by the novation company.

You can novate a used car. The used car can be purchased:
- through a LMCT (Licenced Motor Car Trader) dealership;
- from a private seller; or
- from yourself! (your own car) *conditions apply

Yes, you can ask the novation company to organise the purchase of your own car by the financial institution, and then arrange to have the vehicle leased back to you through a novated lease. This was a particularly popular method of novation when interest rates went up and people wanted to move the lump sum they had invested in their car on to their home mortgage.

*The amount paid for your car will be determined by an evaluation obtained by the finance company and the novation company.

Can You Novate a Car if You're Self Employed?

The simple answer is 'yes'. My husband - who knows about these things - tells me that if you have a ABN number and you draw a set wage from your business you can novate a car. Your company is the 'employer' and you are the 'employee'. You get all the pre-tax benefits that any other person would get. If you don't draw a set wage from your business (i.e. draw random amounts of cash), but still pay PAYE tax, you can also novate a car, but it will require a little more paper work from your end.

Who Can Novate a Car?

Wondering if you can novate a car? Well if you work on a full-time basis for a company who allows their employees to salary package vehicles, then you can. Many companies nominate a particular novation company for their employees to go through, although some leave that decision to the employee. The type of car you can novate will depend on your salary scale and your other committments. You're probably not going to get approval for a $120,000.00 car if your annual salary is less than $50,000.00! The novation company will work with the employee, the employer and the financier to broker the deal.

What is 'Novation'?

Well I for one had no idea about what novation was and how it worked until someone asked me what my husband did. I told them he was in the novation business.. but then they asked me to explain... I 'um'ed and 'ar'ed for a bit, then said it had something to do with selling cars. Wrong!!!! When I told him about the conversation he was particularly unimpressed and he sat me down and explained in detail why he wasn't a car salesman.

Apparently car novation is to do with financing cars - but in a way which is very beneficial to the purchaser. You can actually go out and find the car you want yourself. Make the deal, do the sale etc., and then get in touch with a novation company and they can 'salary package' it for you. You can make payments for the car, insurance and even petrol costs in pre tax dollars! Cool... who would have thought! So much to learn, so little time...