FAQ: What is a Novated Lease, and how do they work?
What is the definition of a Novated Lease, and how do they work?
A Novated Lease is a vehicle lease agreement between you, your employer and a finance company. Novated Leasing is also known as car salary packaging or salary sacrifice.
Entering into a Novated Lease means that your employer agrees to pay your vehicle lease payments out of your pre-tax salary. Paying with pre-tax dollars can effectively save you money as your income tax is calculated on the reduced total of your salary or wages minus car payments. Your disposable income is greater than it would be if you were paying for the same vehicle with post-tax dollars.
If Novated Leasing is a benefit offered by your employer, you're able to choose the vehicle you wish to drive without the restrictions that typically apply to a company fleet. Once you've purchased the vehicle and made the finance arrangements in your own name, you then enter into a Novation Agreement with your employer.
You agree to "salary sacrifice" part of your earnings in return for the benefit of the car and related costs. Your employer agrees to be responsible for making your lease payments and other agreed costs for the term of your employment.