Novated Leases

With a novated lease, you use your pre-tax salary to pay for your car and running costs. It’s a bit of a game changer.

Get a car and pay less tax

A novated lease is a way to salary sacrifice your car and pay for it out of your pre-tax income. You ‘novate’ your car’s lease to your employer (novate just means ‘assign the lease obligations to another party’), and your employer deducts the cost of your car from your salary before tax. This reduces the income tax you pay each pay-cycle so you keep a lot more money in your pocket.

On top of that, you can avoid paying GST on your vehicle and running costs (fuel, servicing, insurance, roadside assistance and your yearly rego) for an additional 10% saving. And you can include all of your running costs in your lease for one easy payment. Your payments are fixed, so you know exactly what you’re paying for your car each month. If you’d like to understand how a novated lease can be life changing for you, you can read more in our articles below, which dive into the details.

See what you could save

Use our calculator to estimate your potential savings.

How do novated leases work?

It’s pretty simple in practice. An agreement is set up between you, your employer, and a lease provider. Instead of you paying for your car outright, you enter into a lease agreement for the car for a fixed period between 1 and 5 years.

Then, you ‘novate’ your car’s lease to your employer (novate is just a fancy word for ‘assign the lease obligations to another party’). Your employer deducts the cost of your car from your salary before tax, reducing the income tax you pay each pay-cycle. Your car payments are fixed, so you know what you’re paying for your car each month.

You might have heard people say they’ve ‘salary sacrificed’ items with their employer, like a laptop or a phone or another asset. A novated lease is basically a way to salary sacrifice your car.

Bundle all your on-road running costs pre-tax

One of the most exciting features of a novated lease is the opportunity to include all running costs with your car in one predictable regular payment – something not possible if you buy outright or use a standard car loan. You can salary sacrifice not only the repayments on the vehicle itself but also all running costs associated with the vehicle.

With a novated lease, you pay for these running costs and your car in pre-tax dollars, lowering your taxable income – a tax efficiency that can save you thousands. As an added bonus, you won’t pay GST on any of these items either (a further 10% saving).

It’s up to you which running costs you’d like to include with your lease. Naturally, you can save more if you include more, given that you can pay from pre-tax income with a novated lease, but if you only want to include some (or none), you can. See our plans to find out more.

How do I get a novated lease?

To salary sacrifice your car and qualify for a novated lease, you do need to be employed, as your lease is paid with your salary (as the name suggests). Your employer also needs to offer novated leasing. If your employer doesn’t offer novated leasing, we’re happy to talk to them about it and guide them. We also have a handy employer guide here on our site.

The process can be summarised like this:

  1. Once you’ve done your research on novated leasing and picked a provider you like, get a quote over the phone – it should only take a few minutes.

  2. You receive your quote via email and while you’re mulling it over, your provider can get you pre-approved for finance. There’s still no obligation at this point but it can speed things up.

  3. If you decide to go ahead, you and your employer sign a simple agreement that says that your employer will make payments from your salary on your behalf.

  4. You get final approval on finance and get your car and welcome kit.

Then you don’t have to do much – your employer continues to make payments for you from your pre-tax salary and if you’ve chosen to roll your running costs (fuel, rego, roadside assistance, insurance and servicing) into your lease, these will all be covered too.

See what you could save

Use our novated lease calculator to get an instant estimate on how much you can save. The calculation includes the car, fuel or electricity and on-road running costs to maximise your savings. It’s inclusive of fees and there are no hidden costs – what you see is what you get.

Why get a novated lease?

Reduce your tax bill by using pre-tax income

Fleet pricing on a range of cars

Bundle your running costs into one payment

No bill shock with smooth payments

Avoid GST on the car and on-road costs

Flexible plans and end of lease options

Is novated leasing right for me

Novated leasing is a godsend for car seekers who want to be savvy with their budget but don’t want to compromise on their needs. Still, it might not be for everyone. Here are 8 questions to ask yourself if you’re not sure a novated lease is right for you:

  1. Do you have an employer (PAYG)?

  2. Is your employer set up for novated leasing or, if not, are they willing to be?

  3. Are you ok with having your employer involved in the process?

  4. Is lowering your tax bill of high importance to you?

  5. Are you spending more than you’d like on fuel and car servicing and would you like to use your pre-tax income to reduce your spend?

  6. Are you interested in bundling all of your car costs within one easy monthly payment?

  7. Are you ok with taking on monthly payments yourself if you’re in between jobs and without an employer (as you would with loans or credit cards)?

  8. Is the car you get important, and would you like access to wholesale pricing to potentially get a better deal on a car?

If you answered ‘Yes’ to most of the questions above, chances are you’re a good fit for a novated lease.

Frequently Asked Questions

  • Novated leasing can be a great idea if you’re looking to get a car while reducing your taxable income and the amount of tax you need to pay. A novated lease allows you to pay for a car and all of its running costs out of your pre-tax income. You can save thousands of dollars in income tax and GST each year, simply by novating your car.

  • It sure can. Novated leases are designed to help savvy car buyers reduce their taxable income by allowing them to pay for a car out of their pre-tax salary (it’s sometimes called a ‘salary sacrifice’). If you earn $70,000 per year (before tax) and your annual novated lease payments add up to $10,000, your taxable income lowers to $60,000.

  • Let’s say you earn $80,000 a year. You’d be paying over $18,000 in tax and then paying for your car (ownership/lease and running costs) out of the $62,000 remaining after tax (the average Australian spends around $36,000 on a car and then around $5,000 per year to run it). If you put the same car on a novated lease, you pay for a portion of the car and running costs out of your pre-tax salary, reducing your taxable income. This reduces your $18,000 tax bill in a serious way – on a three-year novated lease you’d save around $6,600 in income tax for the life of the lease (over $2,200 a year). In addition, you also avoid GST on your car purchase and running costs. In this example, the GST saving over three years amounts to around $5,000!

    Put these savings together and you will save around $11,600 in income tax and GST over 3 years, just by novating your car. That’s an additional $11,600 cash in your pocket. In addition to this, a significant portion of your car expenses have already been paid as part of the novation, so the extra money in your pocket won't have to be spent on your car.

  • No, they’re quite different. A car loan comes out of your post-tax salary so you pay for the loan after you’ve paid tax on your earnings, whereas a novated lease comes out of your pre-tax salary, so you pay for your lease before tax and that reduces your tax bill. In almost all cases your tax savings greatly exceed the interest you pay on the lease, so you’re almost always much better off.

  • You can include the car plus all of its running costs. That means fuel, servicing costs, tyres, insurance, roadside assist and even your rego. The more you include, the bigger your tax savings. But we’re flexible – some people like to arrange their insurance or servicing separately, and that’s okay. Our novated lease plans page outlines three popular options (just the car, the car + everything, the car + your choices) with a simplified comparison to help you weigh up the benefits of each. Check out our novated lease plans here (link to page 3: novated lease plans)

    It’s important to note that some items are not considered to be legitimate car operating costs by the ATO and are therefore unable to be included in a novated lease. These items include, but are not restricted to, road tolls, parking expenses, fines & infringements costs and vehicle options or accessories fitted after the delivery of the car.

  • At the end of your lease there will always be an amount of money owing on the lease that needs to be paid. This is referred to as the ‘residual’ or ‘balloon’. In essence, the ‘residual value’ is a conservative estimate of what your car will be worth at the end of the lease (the “depreciated value”).

    Under ATO regulation, a novated lease must always include a residual value and the ATO has specified formulas that must be used to calculate this residual value. More often than not, the ATO specified residual value is lower than the actual market value of a car at the end of a lease. This means that most people end up in a strong position at the end of a lease, as they can sell the car for more than they owe on the residual. If you chose to sell the car at the end of a lease, any cash you make after paying the residual is yours to keep, tax free.

    Another advantage of the residual is that it helps to keep your lease payments low. This is because your lease payment is not calculated on the total cost of the car, but on the cost of the car less the residual.

  • The balloon payment is just another way to say ‘residual value’. It’s a conservative estimate of what your car will be worth at the end of the lease (and the amount to pay when the lease ends). Residual values are set by the ATO and are based on their estimate of how much vehicles depreciate over a lease term. The standard ATO residual values are calculated as a percentage of the “drive away” price and are as follows:

    1-year lease: 65.63%

    2-year lease: 56.25%

    3-year lease: 46.88%

    4-year lease: 37.50%

    5-year lease: 28.13%

    One thing most people don’t realise about the balloon payment is, it’s almost always lower than the current market value of your car when it comes time to pay it. So if you choose to sell your car, you can pocket a nifty profit.

  • Fringe benefits tax (FBT) is a tax the Government places on any benefit you receive from your employer related to personal use. In other words, if your employer pays for something that you use in your personal life, it creates an FBT liability for your employer.

    Before FBT, employers got into the habit of paying personal “life expenses” for employees before declaring how much they paid them. For example, an employee might have earned $50,000 and had mortgage payments totalling $10,000 per annum, and the employer would pay the $10,000 mortgage repayments for the employee and then declare the employee’s income as only $40,000. This resulted in the employee paying less income tax, which was great for the employee, but not so good for the Government missing out on this tax. So the Government introduced FBT to claw some of this lost tax back.

    Any situation where your employer pays for a car on your behalf that you use outside of work may well result in an FBT liability for your employer. Novated leases can create this liability too, however we counteract it by using part of your post-tax salary along with your pre-tax salary. We refer to this post-tax salary sacrifice as an “employee contribution”.

    We specialise in looking at your unique circumstances and calculating the exact amount of employee contribution you need to make to offset any FBT liability for your employer.

 

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Suggest us to your employer.

 

Want to go with us but your company doesn’t offer novated leasing or hasn’t set us up? We can do the heavy lifting for you.

 

Already have a car?

 

Novated leases aren’t just for new cars. A sale and leaseback is how you can move your existing car onto a novated lease to start saving on tax.