Novated Lease Australia: A Complete Beginner’s Guide by Novated Finance Australia
A novated lease in Australia is a popular vehicle financing option that provides substantial tax benefits and added flexibility for employees. It involves a three-way agreement between the employee, employer, and a finance company, allowing the employee to lease a vehicle while making repayments through salary sacrifice. This arrangement helps reduce the employee’s taxable income and streamlines vehicle ownership by combining running costs—such as fuel, maintenance, and registration—into one convenient pre-tax payment.
Learn more about the advantages and disadvantages of novated leases before making your decision.
Understanding the intricacies of novated leasing is essential for both employees and employers. While employees benefit from tax savings, employers can offer novated leasing as a valuable incentive without managing a vehicle fleet.
It is also important to be aware of the potential downsides of a novated lease and the responsibilities involved.
What is a Novated Lease?
A novated lease is a financial agreement between an employee, an employer, and a finance provider. The employee leases a vehicle, and the employer makes the lease payments directly from the employee’s pre-tax salary through a salary sacrifice arrangement.
Find out the impact of novated leases on your tax return.
How Does a Novated Lease Work?
The employee selects a vehicle and signs a lease agreement with a finance provider. A novation agreement is then signed, transferring the lease obligations to the employer. The employer deducts payments from the employee’s gross salary and forwards them to the finance provider.
Learn more about how novated lease repayments are structured.
Types of Novated Leases
Fully Maintained Novated Lease
This lease includes running costs such as fuel, maintenance, insurance, and registration within the regular payment.
Non-Maintained Novated Lease
This option covers only the lease payment. The employee pays other running costs separately.
Read about what vehicle expenses are included in a novated lease.
Benefits of a Novated Lease
Tax Savings
Lease payments are deducted from pre-tax salary, reducing your taxable income. GST on the purchase price may also be claimed by the finance provider.
Learn if salary sacrificing a car is worth it in Australia.
Convenience and Flexibility
All vehicle expenses are bundled into one predictable payment. Employees choose their preferred vehicle and benefit from potential fleet discounts.
Compare whether it's better to buy a car outright or novated lease.
Employer Benefits
Employers can offer novated leasing as a cost-effective benefit without the burden of vehicle ownership. If an employee leaves the company, the lease follows the employee.
Learn what happens if you leave your job with a novated lease.
Steps to Establish a Novated Lease
1. Assess Eligibility
Check if your employer offers novated leasing.
Read more about who is eligible for a novated lease in Australia.
2. Select a Vehicle
Choose a car that suits your needs and budget.
3. Obtain Financing
Work with a finance company to structure the lease.
4. Sign the Novation Agreement
Your employer agrees to deduct payments and transfer them to the finance company.
5. Maintain the Lease
Make sure all terms are met. With a fully maintained lease, running costs are covered in your deductions.
6. End-of-Lease Options
Pay the residual value and own the vehicle
Refinance the residual into a new lease
Sell or trade-in the vehicle
Discover how to calculate the residual value on a novated lease.
Who Should Consider a Novated Lease?
Ideal Candidates
Employees seeking tax efficiency
Workers with stable employment
Drivers who upgrade their vehicles regularly
Those who prefer budget certainty
Read a full comparison of the pros and cons of novated leasing.
Who Should Avoid It
Freelancers or self-employed individuals
People likely to change jobs soon
Drivers with unusually high or low mileage
Learn how to exit a novated lease early.
Common Myths About Novated Leasing
Myth 1: Only new cars are eligible
Fact: Used cars can also be leased if they meet provider requirements.
Myth 2: You lose the car if you change jobs
Fact: You can transfer the lease or make direct payments.
Myth 3: It's only for high-income earners
Fact: Many income brackets can benefit depending on how the lease is structured.
Case Study: Sarah’s Novated Lease Savings
Sarah, a 35-year-old marketing manager earning $90,000, planned to finance a Toyota RAV4. Instead, she chose a fully maintained novated lease and reduced her total cost by over $8,000.
Learn more about maximizing tax savings with salary packaging.
How Novated Finance Australia Can Help
We offer expert support through the entire leasing process including:
Vehicle selection
Finance comparison
Salary packaging advice
Employer coordination
End-of-lease support
Considering an electric vehicle? Learn whether it’s worth salary sacrificing an EV and if you can claim charging costs.
Ready to Start?
Let our experts help you get the best value from your novated lease.
FAQs
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If you leave your job, you must take over the lease payments personally or transfer the lease to a new employer. Some providers offer solutions to help with this transition.
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Yes, some providers allow used cars, but they usually have age and condition restrictions.
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Novated leases typically range from 2 to 5 years, depending on the agreement.
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No deposit is required, as the lease is fully financed. However, if you wish to own the car, you will have a residual value to pay at the end of the term.
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If you opt for a fully maintained lease, these costs are included in your salary deductions. Otherwise, you will need to cover them separately.