Who Owns The Asset In A Novated Lease?

In a novated lease arrangement, the employee is typically considered the owner of the asset, such as a vehicle, that is being leased. The arrangement allows employees to access a vehicle through a salary packaging arrangement, making it a popular choice for many workers in Australia. Here’s how ownership works in a novated lease:

Employee Ownership

The employee takes on the primary role of the owner. They enter into the initial lease agreement with the finance company to acquire the vehicle and are responsible for its use. The vehicle belongs to the employee, and they have full rights to drive it and make personal use of it, provided they follow the terms and conditions set out in the lease agreement.

Employer's Role

The employer acts as a facilitator in this arrangement. They make the lease payments directly to the finance company on behalf of the employee, using the employee’s pre-tax salary. This is part of a salary packaging deal that offers tax benefits. However, it’s important to note that the employer does not take ownership or control of the vehicle. They simply play a supporting role by managing the financial aspect.

Employee Responsibilities

Since the employee is considered the owner of the vehicle, they are responsible for maintaining it. This includes taking care of insurance, servicing, and any other running costs, unless otherwise stated in the lease agreement. At the end of the lease term, the employee typically has a few options. They can either purchase the vehicle or extend the lease.

Accounting Treatment

From an accounting perspective, the employer does not recognise the vehicle as their asset, as the lease agreement does not grant them control over the vehicle. The employer’s involvement is solely financial, making the lease a cost-effective way for the employee to access a vehicle without impacting the employer’s balance sheet.

In summary, while the employer helps with financing the vehicle through salary packaging, ownership and control remain with the employee. The novated lease is a great way to enjoy the benefits of owning a vehicle while taking advantage of tax savings. If you’re interested in learning more about how a novated lease could benefit you, contact us today to explore your options.