Novated Lease
Novated Lease is a three-way salary packaging arrangement where an employee leases a vehicle, and the employer makes the repayments using the employee’s pre-tax and post-tax income. The finance company owns the vehicle during the lease, while the employer handles the payroll deductions and the lease payments.
It is one of the most tax-effective ways for employees to finance a car in Australia.
Why It Matters
Novated Leasing can significantly reduce the cost of owning a vehicle because repayments come partly from pre-tax income. It also bundles running costs such as fuel, servicing, registration, and tyres, making budgeting easier.
For employers, it’s a powerful retention benefit with minimal administrative burden.
How It Works
- The employee chooses a vehicle.
- A salary packaging provider sets up the lease.
- The employer deducts repayments from the employee’s pay.
- The finance company owns the vehicle; the employee drives it and looks after it.
Compare to traditional asset finance: Low Doc Asset Finance.
Common Use Cases
- Employees wanting to salary package a car
- Businesses offering salary packaging benefits
- Professionals upgrading to safer or newer vehicles
- Drivers who want running costs bundled into one payment
Related Switchboard Resources
For official ATO rules on salary packaging, visit ato.gov.au.