As the owner of a novated lease vehicle, the employer is potentially subject to Fringe Benefits Tax (FBT).

Under the Australian Tax Office rules, every dollar made as a post-tax deduction reduces the FBT Taxable Value by the same amount.

It is usual, under a novated lease arrangement, for the employee to repay the employer this amount. This Taxable Value can be offset using the ‘Employee Contribution Method’ (ECM). An Employee Contribution is an amount towards your lease payment that has already been taxed, a ‘post tax’ amount. Every dollar made as a post-tax contribution; reduces the Taxable Value by the same amount.

Most employers will offer the Employee Contribution Method as the standard payment model.

The amount of post-tax contribution you are required to make is included in the driver’s novated lease quote.