Novated Lease – An Overview

A novated lease has become a progressively more popular form of vehicle financing over recent years in Australia. A novated lease has many features of more traditional forms of vehicle finance to deliver some striking benefits for both employers and employees.

A novated lease is a three way arrangement between employee, financier and your employer, where the obligation to meet the repayments under the finance leases is with the employer. The employer then pays the cost of this lease. In addition they may pay all running costs related with the running of the car. The total of all these costs is deducted from your salary, thus reducing your tax.

With a novated lease agreement, you own the vehicle and have the right to take it with you should you change jobs and, structured correctly, there may be tax advantages with your remuneration package.

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As with other leasing structures, repayments with a novated lease are flexible and amounts depend on the term, interest rate, amount borrowed and the residual payment.

Under this arrangement, the employer pays the monthly lease rentals on behalf of the employee, and provides the vehicle for the employee to use as part of their salary packaging arrangement.

If employment ceases for any reason, or the lease agreement is finalized, the Novation ceases and the obligations assumed by the employer revert back to the employee.

Benefits of a novated lease for the employee include:

The vehicle may be leased for 100% private use Financing of the vehicle may be paid with pre-tax dollars Option to own the vehicle at the end of the novated lease term Greater flexibility with the choice of a vehicle More than one vehicle may be leased with employer consent

A Novated Lease will suit any employee who wants to include a motor vehicle as part of their salary package, so long as their employer offers salary packaging as an option for employees.

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