Can I Claim GST on My Employee’s Novated Lease?
Offering novated leasing to your employees comes with financial advantages—not just for them but for your business too. One key benefit is the ability to claim GST on lease payments and running costs, which can reduce your BAS (Business Activity Statement) liability. Here’s how it works.
How GST Works with Novated Leasing
When your business facilitates novated leases through salary packaging, you can claim GST credits on:
- Lease Payments: GST included in the lease payments is claimable, lowering the overall cost of the benefit.
- Running Costs: GST on vehicle-related expenses such as fuel, insurance, and maintenance is also claimable.
- BAS Liability: The GST credits you claim reduce the amount payable on your BAS, improving your cash flow.
Eligibility Requirements for Claiming GST
To take advantage of these benefits, your business must:
- Be GST-Registered: Your business must be registered with the ATO.
- Track Business Use: Maintain records of how the vehicle is used to claim the correct percentage of GST.
- Hold Valid Tax Invoices: Collect and retain tax invoices for all lease payments and running costs.
How Claiming GST Reduces Your BAS Liability
Every GST credit you claim offsets your GST payable on your BAS. For example:
- Input Tax Credits: By claiming GST on lease payments and running costs, you reduce the GST payable on sales revenue.
- Cash Flow Benefits: This reduction can ease financial pressure and make novated leasing a cost-efficient employee benefit for your business.
Benefits of Claiming GST on Novated Leases
- Reduced Costs: Lower lease-related expenses by claiming GST, making novated leasing more affordable for your business.
- Improved Cash Flow: A reduced BAS liability translates to better financial management.
- Enhanced Employee Perks: By lowering costs, you can offer competitive benefits without affecting your bottom line.
This doesn't even account for the savings in Payroll Tax which become highly incentivising when rolled out at scale.
Common Misconceptions About GST on Novated Leases
Misconception #1: “I can’t claim GST on vehicles used personally.”
Vehicles used for both business and personal purposes are still eligible for partial GST credits based on their business use percentage.
Misconception #2: “Claiming GST is complicated.”
With proper systems in place, such as payroll integration and detailed record-keeping, the process is straightforward.
Misconception #3: “GST claims don’t impact BAS.”
Claimed GST directly offsets your GST payable, significantly reducing your BAS liability.
Clear Lease: Making GST Benefits Easy
At Clear Lease, we help employers streamline novated leasing while ensuring you maximise benefits like GST claims and BAS liability reduction. From payroll integration to ATO compliance, we’ve got you covered.
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Related Questions:
Novated leasing requires minimal effort as long as your provider has a service focus. With automated systems and clear instructions from providers, your payroll team only needs to process a few deductions and maintain basic records.
Employers need to manage salary deductions, report fringe benefits accurately, and partner with a leasing provider to ensure compliance. The service focus of your leasing provider will determine how much of the administrative tasks are handled by you, vs them.
Salary sacrificing is when you exchange part of your pre-tax income for non-cash benefits, novated leasing is one kind of salary sacrificing. The goal is typically to increase take-home pay, or make a salary packaged item more cost-efficient (i.e, getting twice as nice of a car for the same price when it's pre-tax).
No, offering novated leasing is cost-neutral for employers. Employees cover the lease costs through their salary, and businesses may even save on payroll tax when implemented at scale.
Novated leasing used to only make sense for high earners. Thanks to modern tax rules and the ECM method, any employee earning over $40,000 can save on tax and running costs—no matter their car or driving habits.
A novated lease shifts costs and ownership to the employee, offering tax savings and flexibility, while a company car remains a business asset with full employer responsibility. Learn which option works best for your business on our detailed page.
FBT is a tax (with a rate at 47%) applied to fringe benefits (incentives beyond salary/wages received from an employer). A non-electric car under a novated lease is a fringe benefit (electric cars are completely FBT exempt in Australia).
The employer is responsible for paying the FBT, but at Clear Lease - we use the employee contribution method (contributing post-tax funds) to offset any FBT to zero.
This works because we can tax deduct any expenses incurred in the arrangement and maintenance of a vehicle as a fringe benefit. We work out the right mix of pre-tax and post-tax payments the employee needs to make to make sure the FBT liability is negligible for the employer.