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What is a Novated Lease?

Salary packaging a car is all about setting up a novated lease arrangement between an employee and an employer. Utilising a novated lease, an employee agrees to sacrifice a portion of their salary in return for vehicle benefits equal to that amount.

Use our novated lease calculator to see how a novated lease will impact on your take home pay.

A Novated Lease is an agreement between a finance company, an employee and their employer. The employee is able to lease a vehicle from their preferred finance provider, and their employer makes the finance payments from the employees pre-tax income.  The agreement is held in place by all 3 parties signing a Deed of Novation.

Types of Novated Leases

A fully maintained Novated Lease includes all of the costs associated with operating your car.  These can include the finance repayment, servicing, CTP and registration, replacement tyres, roadside assistance and insurance.  These costs are covered in one fixed monthly deduction. 

A non-maintained lease does not include the running costs of the motor vehicle.


Why would an employee want a novated lease?

A novated lease gives employees the flexibility to determine how they are remunerated.  There are also other features to consider:

What is in it for the employer?

Taxation Benefits

Novated lease and running costs of the motor vehicle, and fringe benefits tax (if applicable) are deducted from the employee\'s pre-tax salary, and PAYG tax is calculated on the reduced salary or wages.  An employer may wish to use the Employee Contribution Method (ECM) when setting up and employees package to assist with meeting of any Fringe Benefits Tax obligations.

Depending on the employee\'s individual financial circumstances, salary packaging a motor vehicle under a novated lease may have the effect of increasing an employee\'s net disposal income.

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