A novated lease is one of the most popular ways for Australian employees to get a new car. Here is how it works, in plain English.
The basics
A novated lease is an agreement between three parties: you, your employer and a leasing company. You choose the car. Your employer takes the lease payments and running costs out of your salary, and passes them to the leasing company. If you leave your job, the lease comes back to you or moves to your new employer.
How it saves you money
- Pre-tax payments: most of the cost comes out of your salary before tax, so you pay less income tax.
- No GST on the car: the GST on the purchase price is not passed on to you.
- Bundled running costs: fuel or charging, servicing, tyres, rego and insurance in one payment, with the GST saved on most of them.
What about fringe benefits tax?
Because your employer provides the car, it is a fringe benefit. For petrol, diesel and hybrid cars, part of your payment usually comes from your after-tax pay so that no FBT is payable. Eligible electric cars are exempt from FBT, so the whole lease can come from your pre-tax pay. That is why electric cars are such good value. The full exemption applies until 31 March 2027, then continues for eligible EVs under $75,000 until 1 April 2029. Read our EV novated lease guide.
What happens at the end?
There is a residual payment at the end of the lease, set by ATO rules. You can pay it and keep the car, refinance it, or trade the car in and start a new lease.
Is it right for me?
A novated lease usually suits people who drive a fair amount, earn a steady salary and want a new or near-new car. Try our novated lease calculator for a rough idea of your savings, then call us for an accurate quote.
This is general information only and does not take your circumstances into account. Tax rules can change, so please speak to your accountant or tax adviser before making a decision.
Talk to PAR Leasing
Call us on (03) 8387 1200, email davidb@parleasing.com.au or send us a message for a free, no-obligation quote. PAR Leasing is the fleet division of Alan Mance Motors, based at 237-241 Geelong Road, Footscray, and works with organisations across Victoria and the east coast of Australia.