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Novated Leasing Explained

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Novated Leasing & Salary Packaging
A Detailed Guide
The Novated Leasing of cars can have significant advantages for both employees and employers. Commonly used as part of a salary packaging arrangement, a Novated Lease enables employers to provide a significant financial benefit to their employees at little-or-no cost to the business. Read on to find out what a Novated Lease is, how it works, and the benefits of Novated Leasing for both employees and employers.
What is a Novated Lease?
A Novated Lease is a three-way agreement between an employee, their employer and their finance company. Novation is the substitution of a new contract in place of an old one - essentially the employer agrees to take on the employee's lease obligations. The employer makes the monthly lease payments to the finance company and provides a vehicle for the employee's use as part of a salary packaging arrangement.
How does it work?
If your employer offers Novated Leasing as a salary packaging option, you can select a vehicle that suits your lifestyle. You can choose the make and model, new or used, sedan, wagon, 4WD, etc., without any of the restrictions usually found with a traditional company fleet. You 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.
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