What is a novated lease?
Essentially it’s an agreement between your employer, a finance company and yourself that bundles together all the costs of your vehicle and allows you to pay them using pre-tax dollars.
What are the perks of novated leasing?
As an employee, the main one is financial. Because your lease payments can be deducted from your pre-tax income, you'll be able to save big bucks on your tax return at the end of the year. You'll also have full control over which vehicle you choose and if you decide to leave your job further down the track, you'll be able to take the car with you.
Common questions about novated leasing
How does a Novated Lease work?
If your employer offers novated leasing as a salary packaging option, you can select a vehicle that suits your lifestyle. If you usually get your car through a company fleet, a novated lease allows you to purchase without restriction so whether you’re after a new sedan or a used 4WD you can purchase the vehicle and then enter into a finance agreement in your own name.
Once you've purchased the vehicle, you, your employer and the finance company all sign a novation agreement. Your employer agrees to take on your obligations (repayments) to the finance company, and is responsible for all of the agreed vehicle expenses which are deducted from your remuneration as part of your salary packaging arrangement.
You agree to "salary sacrifice" a portion of your earnings in return for the benefit of a car equal to that amount. With a novated lease, the lease, running costs of the vehicle and Fringe Benefits Tax (FBT) are deducted from your pre-tax earnings, and PAYG income tax is calculated on your reduced salary. This can effectively increase your net disposable income as you pay less tax.
What are the benefits of a novated lease for employees?
Novated Leasing offers many benefits for employees:
- A novated lease is both cost and tax effective. Your salary packaged vehicle costs are paid from your pre-tax income. Paying with pre-tax dollars means that you enjoy a lower rate of tax on the benefit than if you were to pay for the running costs of the vehicle using after tax income.
- Freedom to select the vehicle of your choice. This is because a salary packaged vehicle is not part of the company fleet.
- The vehicle is yours to use 100% of the time. There are no restrictions on who can drive it.
- Your lease and your vehicle are portable. If you change jobs, you can take them both with you and enter into another Novation Agreement with your new employer and the financier (double check your new employer will offer novated leasing).
- Lease repayments are fixed for the term of the lease.
- You can select flexible lease terms from 12 to 60 months (one to five years).
- There are several tax benefits associated with a novated lease including Input Tax Credit (ITC) and related benefits. Speak to your accountant to find out more.
Who is eligible for a Novated Lease?
If you are working full time or permanent part time and your employer supports salary packaging - you're eligible.
What can be included in a Novated Lease?
- Vehicle finance
- Comprehensive insurance (or you can arrange your own)
- Maintenance such as servicing, tyres, battery replacement and repairs
- Roadside assistance
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