Novated Leasing

What is Novated Leasing?

For many working Australians of all income levels, including teachers, nurses, police officers, emergency service personnel, miners, office workers and aged care staff and the like, novated leasing is an increasingly popular and cost-efficient means to own and operate their car.
Importantly it’s an ATO-approved arrangement between an employee, their employer, and a finance provider that enables employees to lease a new, used, or existing vehicle of their choice using their pre-tax salary.
Your finance and running costs are bundled into one simple payment each pay. Meaning expenses for things such as fuel or electricity, maintenance, insurance and registration are already budgeted in your running costs. You don’t pay GST on these expenses, which means you pay less money on costs you’re already paying.
For petrol/diesel vehicles, Hybrid Electric and luxury Electric Vehicles, a portion of your regular lease payment is made using pre-tax dollars. For EVs under the luxury car tax threshold, payments are drawn entirely from your pre-tax salary, supercharging your savings.
This approach streamlines financial management by consolidating your vehicle-related expenses—into one simple payment. This not only enhances budget predictability but also streamlines the process of vehicle ownership, making it a great choice for both employees and employers.

How Does Novated Leasing Work?

A novated lease is a flexible car leasing option that involves three parties: you (the employee), your employer, and the leasing provider (including the financier).
Just like other forms of car finance, there are typically a number of payments over a fixed term, with a residual (or balloon) payment due at the end of the lease.
Each party to the agreement – employer, employee, and the leasing/financier provider plays a specific role as follows:

A novated lease arrangement transfers the payment responsibility from you to your employer, simplifying the leasing process and providing significant savings in both time and money. By opting for a novated lease, you can enjoy the benefits of a new car while managing your budget effectively.
Your end of lease end options:

You can extend the lease
You can make a final payment to own the car
You can trade in the car for a newer model
The length of the lease can vary between one to five years. The longer the lease, the lower the monthly payments.

Benefits of Novated Leasing

Novated leasing offers a wide range of advantages for both employees and employers, making it an attractive option for many organisations.

Benefits for Employees:

Tax Savings
Reduce your taxable income and save on income tax as well as GST on vehicle running costs.
Convenience
Combine all vehicle-related expenses into one regular payment, simplifying budgeting and financial planning.
Flexibility
Choose from new, used, or existing cars, including options like electric, plug-in hybrid, and hydrogen fuel cell vehicles.
Ongoing Support
Receive continuous assistance from experienced leasing providers, ensuring hassle-free management of your lease throughout its term.

Benefits for Employers:

Enhanced Employee Benefits
Provide a valuable perk that boosts employee satisfaction and retention, making your organisation more attractive to potential hires.
Cost-Effectiveness
Employees cover lease costs through salary deductions, resulting in no significant financial burden on the organisation.
Reduced Administrative Burden
Leasing providers handle all aspects of the lease program, including reporting and invoicing, which minimises administrative tasks for your team.
Financial Advantages
Take advantage of GST breaks and reduced payroll tax liabilities, contributing to overall cost savings for your organisation.

By implementing a novated leasing program, both employees and employers can enjoy substantial financial and operational benefits, making it a smart choice for any organisation.

Why Choose a Novated Lease?

Novated leasing is an advantageous solution for both employees and employers, offering a range of benefits that enhance financial well-being and streamline car ownership.

For employees, novated leasing increases disposable income and provides access to a wider selection of vehicles, allowing for greater personalisation based on individual preferences and needs. For employers, novated leasing enhances remuneration and retention strategies without imposing significant costs on the organisation.

Hundreds of thousands of Australian employees are already experiencing the rewards of novated leasing, making it a popular and practical choice for those in need of a vehicle. Depending on your income level or driving habits, a novated lease can deliver substantial savings and convenience, making it an appealing option for both individuals and organisations.

Who benefits the most from a novated lease?

Novated leasing is used by employees across all income levels and industries, including teachers, nurses, aged care workers, and miners. No matter how much you earn, as long as you pay tax, you can benefit from novated leasing due to the tax savings. For example:

An employee earning $80K who leases a $40K car and drives 15,000 km per year could reduce their taxable income by around $2,500 annually.
Someone earning $180K with the same car and mileage could save an extra $400 per year.

This means lower- to middle-income earners often see greater tax savings relative to their income, making novated leasing an attractive option for a wide range of workers.

What are some of the things we suggest you should note with a novated lease?

Always speak to your employer first to confirm that they offer novated leases and check with them to see if you’re eligible.
Novated lease payments are paid from your pre-tax salary, which will reduce your take-home pay – so be mindful of that.
A novated lease is a type of benefit provided to employees, for which your employer may have to pay fringe benefit tax (FBT) to the Australian Tax Office (ATO) – most often this tax is paid by the employee as part of your novated lease. Discuss the lease with your employer to understand how this could impact you and them.
Keep in mind that if you change jobs or stop working, the responsibility for making the lease repayments remains with you. You may be able to transfer your lease to your new employer, but you may also have to take over the repayments (which may no longer be pre-tax).
At the end of the lease term, you’ll need to make a lump sum payment (similar to a balloon payment) to cover the residual value of the car.
You should seek independent, professional tax advice to determine any tax impacts a novated lease arrangement may have on your circumstances.

Novated Leases FAQ

Novated leasing is an increasingly popular and efficient form of car financing, approved by the Australian Taxation Office, that has been around for decades.

With employer support, workers can use pre-tax income to cover vehicle lease payments and running costs like registration, insurance, and maintenance—reducing taxable income. This means workers can keep more of their tax home pay that they’ve worked hard for.

Off the back of a cost-of-living crisis, and due to the FBT EV exemption, more Australians than ever before are experiencing a novated lease, a cheaper, more efficient way to own a car.

An employer deducts money from a worker’s pre-tax income to cover lease payments and running costs like fuel, insurance, tyres, and registration. This reduces your taxable income meaning you’re receiving more of your hard-earned income rather than it going to the tax man.

With a novated lease, you avoid GST on both the car’s purchase price and running costs, meaning a $50,000 car instantly saves you $4,545 in GST.

There are no large upfront costs, and everything can be bundled into predictable fortnightly payments, making it a simple and effective budgeting tool.

The best term for a novated lease depends on your financial goals and personal preferences. Shorter terms generally have higher payments, but they allow for quicker vehicle upgrades, while longer terms spread the costs over time, offering lower monthly payments. It’s important to choose a term that aligns with your budget and how often you plan to change vehicles.

If you decide to exit a novated lease early, you’ll typically need to cover:

Remaining Lease Payments: All outstanding monthly payments still due under the lease contract.
Residual Value (Balloon Payment/Final Payment): The estimated value of the vehicle at the end of the lease. If you want to keep the car, you’ll need to pay this amount. If you don’t want to keep the car, you typically don’t have to pay the residual value. Instead, you would return the car to the lease provider, and the residual value becomes part of the final settlement process but you will be responsible for other costs.
Early Termination Fees: Many lease agreements include fees for breaking the contract early, which can significantly increase the total cost.

Unlike other forms of finance, such as a car loan, a novated lease offers several options at the end of the lease term:

Pay off the residual to own the vehicle.
Renew the lease for a longer term, either with the same vehicle or by upgrading.
Sell the car and pay the residual value to the financier.

This flexibility allows you to choose the option that best suits your needs at the end of the lease.

With a regular car loan, you’d be making repayments with your post-tax salary.   With a novated lease, your payment uses some of your pre-tax salary, which lowers your taxable income. Plus all your running costs are bundled into one regular, easy, automatic payment.

A residual payment (also known as a balloon payment) is the amount you need to pay at the end of your novated lease if you choose to own the vehicle. The amount is calculated based on tax rules and the portion of the vehicle’s value that was financed. It depends on factors such as the lease term and the estimated value of the car when the lease ends. This payment is usually due when you decide to purchase the car after the lease term concludes.

Yes, there are some restrictions. You can’t lease a car that is designed to carry more than one tonne (about the weight of a small elephant or hippo) or vehicles that can carry nine passengers or more. These types of vehicles don’t meet the criteria for a novated lease.

The interest rate varies between providers and you should check this with their provider. NALSPA isnt directly involved in the commercial rate arrangements of its members. Whilst not required, many providers already disclose the applicable rate – and if they don’t you should ask that of your provider.

Unlike banks, which primarily offer online-only applications with minimal customer support, NALSPA members provide a comprehensive, service-driven experience tailored to employer requirements. Many employers select NALSPA providers based on strict service, compliance, and efficiency standards, ensuring employees receive end-to-end support throughout the leasing process. They are selected by employers based on a much wider and more stringent set of criteria.

Additionally, NALSPA members specialise in handling high application volumes with fast turnaround times while offering access to multiple financing options. Banks have not been appointed to most employer funding panels because they do not meet such high service standards. Due to these added benefits and the higher level of service, the interest rates may differ from those of traditional banks. However, the overall value proposition—including tax benefits, convenience, and fleet discounts—often results in a more cost-effective solution for employees.

In short: Interest rates through a novated lease via a novated lease provider are generally higher than through a personal bank loan as the NL provider works with you through the full term of the lease to manage your lease, the running and maintenance of the vehicle, and the associated tax compliance obligations and reporting. You are getting a more comprehensive service while reducing your taxable income.

Break costs vary by financier but are generally designed to recover the present value of the remaining lease obligations. Some providers may charge additional fees, while others do not. When comparing similar financing structures, there is no clear evidence that novated lease break costs are higher than other forms of finance. However, unlike personal loans—which amortise to a zero balance—novated leases may have residual values, which can make the financial impact of early termination seem higher.

Novated lease providers typically charge employees a small monthly administration fee that reflects the cost of ongoing budget management for the customer for running costs. Novated lease providers are typically remunerated by financiers at a level designed to help recover the significant up-front costs incurred by providers in arranging novated lease finance. The quantum of such remuneration typically varies depending on term of the novated lease and cost of the vehicle being financed.

Novated lease providers typically charge a management or administration fee to cover the costs of handling the lease, compliance, and associated administrative tasks. This fee is usually included in the regular lease payment, ensuring a seamless experience without additional out-of-pocket expenses. Please ask your provider to detail and explain all fees and charges.

An employee earning $80,000 a year who leases a $40,000 car and drives 15,000 km per year could reduce their taxable income by around $2,500 annually.
Someone earning $180,000 a year with the same car and mileage could save an extra $400 per year.

This means lower- to middle-income earners often see greater tax savings relative to their income, making novated leasing an attractive option for a wide range of workers.

As with any financial commitment it’s important to understand what you are signing up to including the fees and costs included.
Be sure that the vehicle is right for you and that the re-payments are affordable and within your budget
Lease Term and Residual Value – the duration of your novated lease affects the overall benefits and cost. Shorter lease Terms: Typically have larger monthly payments but less interest over the life of the lease. Longer Terms: Offer lower monthly payments but can result in higher overall interest costs across the term.
Employment Status and Job Security – a novated lease is tied to your employment so changing jobs can affect your lease arrangement. So if you are about to change jobs it’s a good idea to check with your prospective employer that they offer novated leasing arrangements
We always recommend that you seek independent financial advice before entering a novated lease.