Answer
A novated lease is a financial arrangement where an employee leases a vehicle, and their employer makes the lease payments on their behalf using a combination of pre-tax and post-tax salary deductions. This is commonly used as a salary packaging benefit, reducing the employee's taxable income.
In Lightning Payroll, novated leases are typically handled using both a post-tax deduction and a pre-tax salary sacrifice. Follow the steps below to correctly set up each component:
Setting Up the Post-Tax Deduction
The post-tax component is deducted from the employee’s after-tax income. To set this up in Lightning Payroll:
- Go to Employees >> Allowances/Deductions >> Deductions.
- Create a new deduction entry.
- Enter the deduction name (e.g., "Novated Lease - Post Tax").
- Set the deduction type and amount per pay period as specified in the lease agreement.
- Save the changes.
Setting Up the Pre-Tax Salary Sacrifice
The pre-tax component is deducted from the employee’s salary before tax is calculated. To set this up:
- Go to Employees >> Pay Settings >> Salary/Wage Sacrifice.
- Create a new salary sacrifice entry.
- Enter the sacrifice name (e.g., "Novated Lease - Pre Tax").
- Set the sacrifice amount per pay period as specified in the lease agreement.
- Ensure that the sacrifice is NOT marked as superannuation (super)/Reportable Employer Super Contribution (RESC).
- Save the changes.
Handling Different Lease Arrangements
Some novated lease agreements may only require either a post-tax deduction or a pre-tax salary sacrifice. In such cases, simply skip the step that does not apply to the lease arrangement.
If you are unsure about the specific breakdown of your novated lease, have the employee consult their lease provider or ask their financial advisor for clarification.