Can an Employer Claim Depreciation on a Novated Lease?
Yes, employers can claim depreciation on vehicles under a novated lease, but it comes with specific conditions. While the lease arrangement benefits employees through salary sacrifice, it can also provide tax advantages for employers. Let’s explore how depreciation claims work and what employers need to consider.
Depreciation Claims for Employers
Car Depreciation Limit: Employers can claim depreciation on a vehicle leased under a novated arrangement, but they must adhere to the Car Depreciation Limit set by the Australian Taxation Office (ATO). If the vehicle's cost is below this limit, the employer can claim a tax deduction for the full amount of the lease payments. However, if the vehicle exceeds the depreciation limit, depreciation must be calculated based on asset depreciation rules. This ensures that employers remain within the boundaries of allowable tax claims.
Interest Charges: In addition to depreciation, employers can also claim tax deductions for interest charges associated with the finance contract on the novated lease. This provides an additional avenue for tax savings, making novated leasing a cost-effective arrangement for businesses.
Consider Fringe Benefits Tax (FBT)
One important aspect of offering novated leases is managing the Fringe Benefits Tax (FBT) liability. While employers can claim depreciation, the provision of a vehicle under a novated lease typically triggers an FBT obligation. Employers can mitigate this through salary sacrifice arrangements where employees contribute towards running costs, reducing the overall FBT burden.
Ownership and Liability
During the lease term, the employers do not own the asset. Should an employee leave the company, the responsibility for the lease transfers back to the employee. This structure ensures employers are not left with long-term liabilities tied to the vehicle.
Conclusion
Employers can claim depreciation on novated lease vehicles, providing tax savings when adhering to ATO limits and FBT regulations. This setup can be beneficial, offering tax deductions on both depreciation and interest charges while enabling employees to enjoy the benefits of salary sacrificing their vehicle.
Considering novated leasing for your business? Contact us today to discover how novated leasing can benefit both your company and your employees, with expert guidance on tax savings and compliance.