16 May 2024
Novated Lease - Parental and unpaid leave - What you need to know
Novated Leasing can be a cost-effective method of financing a new or used car and reducing your taxable income.
It's a form of salary sacrificing (also known as salary packaging) - a three-way arrangement between you, your employer and a Novated Leasing provider (such as FleetPartners).
There’s no initial deposit required.
The vehicle finance payment and budgeted running costs can be bundled together and spread across the lease term. A sizeable portion of the lease payment is deducted from your pre-tax salary every pay cycle, which ultimately reduces your income tax.
If it's a new vehicle, you'll could also realise thousands of dollars in GST savings up front on the purchase price. (up to $6,334, as per ATO guidelines, current at 01/07/24).
What happens to my Novated Lease if I go on parental or unpaid leave?
Fortunately, there are a range of options available to you that should provide peace of mind and flexibility. These will vary depending on your situation, but your employer and your Novated Lease provider can guide you through the process.
Let's explore some of the most commonly asked questions.
Can I continue my Novated Lease arrangement while on parental leave?
Yes.
If your employer is still paying you into your nominated bank account while you are on leave, then there is no effect on your lease arrangement.
The same applies if you are receiving any parental leave entitlements that are paid by the government via payroll.
What about unpaid leave? What are the financial implications of having a Novated Lease during parental leave?
This depends on your personal circumstances, but in general, if you go on unpaid leave for any reason (including parental leave), your employer ceases making payments into your Novated Lease account and your novation agreement will end. You will need to pay the finance rental and manage your running costs.
Upon your return from parental leave, you can sign a new novation agreement and your lease payments can again be made by deductions from your pre-tax salary.
Can my employer assist me with my Novated Lease during parental leave?
Your employer or FleetPartners can discuss your options with you.
Should I consider ending my Novated Lease before parental leave?
This is an option.
Terminating your Novated Lease early is an alternative to continuing to make direct lease payments while you are on parental leave. This would mean making a lump sum payment (the residual value, any remaining lease payments and associated fees) before going on leave.
How does a Novated Lease work for part-time or reduced hours after parental leave?
If your employer allows you to have a Novated Lease based on a part-time or reduced hours arrangement, then your Novated Lease will not be affected. In this scenario, the required lease deductions simply continue as they were with your full-time arrangement.
Final words on taking unpaid leave when on a novated lease
It is understandable to have questions or concerns about what happens during parental leave, but it's important to remember that we are here to help. You should reach out to your employer and your leasing provider with any questions you have.
Considerations around Novated Lease and vehicle running cost budgets are no different from managing any other component of your household budget (eg. mortgage, groceries etc.) and there are always options.
Important note: This information is general in nature and does not constitute financial or tax advice and does not take into account specific financial circumstances, situations or needs. Independent financial and tax advice should be sought.
Novated Lease - Parental and unpaid leave - What you need to know