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When is it best to change a company car to a novated lease?

For your fleet

Are you spending precious capital on an under-utilised ‘company car’? Can you provide your employees with a car allowance for a novated lease instead? Eliminate cashflow and depreciation risk for your business and allow your employees a greater choice of vehicles and tax-effective use of their salary. Win-win!

Happier staff, healthier business

As Australia begins to slowly return to ‘normal’, businesses across a range of industries are taking the opportunity to review the way they operate. While the aim of many of these reviews is to ensure their organisations are as COVID-resilient as possible, they’re also looking at smarter ways to spend their money.

In the case of HR and Fleet Managers – whether your organisation has already embarked on a root and branch operations review or not – the current climate is an ideal chance to investigate the possibility of switching from company-managed ‘tools of trade’ fleets and operating leases to novated leases. Why? Doing so could reduce the level of risk in your business and improve cashflow, while also spicing up your employee benefits and boosting staff happiness.

Disruptions to businesses and the economy at-large were significant in 2020. In response to public health advice, many industries, companies and employees quickly adjusted to flexible working arrangements such as working from home and other forms of remote working. As industries and organisations adapted, we experienced an overall decrease in work vehicle usage.

Healthier business

From a business perspective, you should consider if having depreciating assets on the balance sheet is a good thing – especially if they’re not being used as often as before. But any change must be carefully managed to make sure you don’t upset your employees. If you’re not convinced this the best use of your resources, it might be worth reviewing whether switching from an operating lease (company car) to a novated lease option could be a smarter and more effective use of your money.

As well as improving the financial position of your organisation, there’s also a number of efficiency benefits in transitioning from operating to novated leases that fleet managers could potentially leverage.

For example, by making the switch, it relieves fleet managers from

  • the often-costly burdens of procurement
  • adhering to servicing and maintenance schedules
  • managing insurances and Compulsory Third Party (CTP) obligations, and
  • any other expenditures that affect your bottom line

 

Far from just dumping the responsibility of these factors into the laps of employees, novated leasing offers an opportunity to collaborate on choosing a vehicle that will help them do their job effectively while, at the same time, offering them the flexibility to choose a vehicle that suits them for off-the-clock use too.

Happier people

From a people perspective, there are many aspects to consider when reviewing whether an operating lease is better value than a novated lease: the size of your fleet (who gets cars in the first place), the potential tax benefits for employees who get a car allowance, greater flexibility in vehicle selection, and overall staff satisfaction and retention.

A number of reviews already undertaken by LeasePlan with some of our customers, consistently raises an important question:

Are you supplying company cars to people who don’t actually use them that much for business in the current work climate?

Would a novated lease through a car allowance ­– built into an employee’s salary package, for example – be a smarter way of improving the efficiency of your company’s fleet while enabling your people to access a car of their choice and increasing staff satisfaction?

Plus, novated leasing provides your employees with a range of tax benefits. While it’s important to remember that everyone’s tax situation is different, the principle applies across the board – by making lease payments out of pre-tax salaries, employees can maximise how far their car allowance stretches, as well as providing them with an opportunity to bundle vehicle operating costs in their lease (registration and CTP costs, depreciation, insurance, fuel and servicing, etc.) for greater savings.

A novated lease not only gives employees the opportunity to choose their vehicle, but it also allows them to get equity in the vehicle. At the end of the lease term, that employee can sell the car and potentially make a profit, if they’ve looked after it.

Takeaway

Traditionally, operating leases have been offered to people as part of their job role, less so as part of a salary package. Flipping from operating leases to offering novated leases improves your business cash position and employee satisfaction, while reducing your exposure to depreciating assets and improving your balance sheet.

Interested? It’s important for your business to:

  • Review the size, composition and utilisation of vehicles on operating leases;
  • Consult extensively with employees to formulate policies on what car allowances might look like depending on the job role, the amount of vehicle use for work, seniority, previous commitments or remuneration packages;
  • Connect with a good novated leasing partner to ensure staff get the most tax-effective benefit on the car of their choice.

 

To find out if your business could benefit from switching from operating leases to novated leases, speak to LeasePlan today

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