How a Novated Lease Works

The three parties

1. You (the employee): Choose the car, negotiate the price, and drive it.
2. Your employer: Deducts lease payments from your pre-tax salary and sends them to the finance company.
3. The finance company: Purchases the car and manages the lease, insurance, and running costs.

Step by step

1. Choose your car: Pick any new or used car (most leases are for new cars). Get a driveaway quote.
2. Get a lease quote: A novated lease provider quotes your fortnightly deduction including all running costs.
3. Employer sets up deductions: Your employer deducts the lease amount from your gross pay each fortnight.
4. Drive and enjoy: All running costs (fuel, insurance, rego, servicing, tyres) are covered by the lease.
5. End of lease: Pay the residual value to own the car, re-lease, or hand back.

Where the savings come from

Savings come from three places: no GST on the car or running costs, reduced income tax from lower taxable income, and $0 FBT if you choose an eligible EV. On an $85K salary with a $45K EV, total savings over 3 years are approximately $12,976.36.

What happens if you leave your job?

Your novated lease can be "novated" to your new employer. If your new employer doesn't offer novated leasing, you can make payments yourself until you find one that does, or pay out the lease. The car is always yours to keep.

Residual value

At the end of the lease, there is a residual (balloon) payment required by the ATO. This is a percentage of the car's original value. For a 3-year lease, the residual is typically 46.88% of the purchase price. You can pay this to own the car, refinance, or start a new lease.