What is a Novated Lease?

What is a Novated Lease?

A novated lease is a financial arrangement that allows you to lease a vehicle through your employer, using your pre-tax salary to cover the payments.

This three-way agreement between you, your employer, and The Novated Lease Company includes financing the car and often its running costs—like insurance, maintenance, and fuel. Since the lease payments are deducted from your pre-tax income, you could lower your taxable income, potentially reducing the amount of tax you pay and increasing your take-home pay.

It’s a convenient way to get a new or used car with added tax benefits. Plus, the lease is transferable, meaning if you change jobs, you can take the lease with you, subject to your new employer’s agreement.

At the end of the lease term, you have options: you can buy the car for the residual value, trade it in for a new lease, or extend the lease. Novated leasing offers a cost-effective and hassle-free way to own a car, making it an attractive option for many employees.

What vehicle running costs can be included in a novated lease?

In a novated lease, a wide range of vehicle running costs can be included, making it a comprehensive package for the lessee. These typically cover:

Fuel: Costs for petrol or diesel are included, ensuring you're always ready to hit the road.
Maintenance and Servicing: Regular check-ups, services, and necessary repairs are covered to keep the vehicle in top condition.
Insurance: Comprehensive car insurance is included, protecting you against theft, damage, and accidents.
Registration and Road Taxes: Annual fees for vehicle registration and any applicable road taxes are taken care of.
Tyres: Replacement and maintenance of tyres are included, accounting for normal wear and tear.
Roadside Assistance: Coverage for emergency assistance in case of breakdowns or accidents.

This inclusive approach helps simplify budgeting for vehicle expenses, as it wraps all the essential running costs into one regular payment, deducted directly from your salary each pay.

What are the benefits of novated leasing?

Novated leasing offers several benefits for both employees and employers, making it an attractive option for acquiring a vehicle. Here are the key advantages:

Tax Savings: For employees, payments are made from pre-tax salary, which can lower taxable income and result in tax savings. Employers benefit from reduced payroll tax and the ability to offer a more attractive remuneration package.
Budget Management: All vehicle expenses are included in one regular payment, making it easier to manage finances. Running costs like fuel, insurance, maintenance, and registration are covered, providing peace of mind and predictability in budgeting.
No Upfront Costs: Unlike traditional car loans, novated leases often require no upfront deposit, allowing employees to access a new or used vehicle without a significant initial financial outlay.
Flexibility: Employees have the flexibility to choose the vehicle that suits their lifestyle and needs, with the option to upgrade or change vehicles at the end of the lease term.
Convenience: The lease arrangement simplifies the process of car ownership, with the leasing company often taking care of the vehicle's financing, insurance, maintenance, and other running costs.
GST Benefits: Employees may benefit from GST savings on the purchase price of the vehicle and on running costs, as the employer can claim GST credits, reducing the overall cost of the vehicle.
Improved Cash Flow: By including vehicle costs in a novated lease, employees can better manage their cash flow, freeing up income for other investments or expenses.

What is a
Novated Lease?