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Novated Leases and Employee Benefits

An Overview of Novated Leases

A novated lease is an agreement between employer, employee and leasing company whereby an employer leases a vehicle on behalf of an employee. The company then makes repayments on the lease and deducts the payment from the employee’s pre-tax income.

There are several types of novated leases an employer can offer an employee: novated finance lease, fully maintained novated lease and fully maintained novated operating lease. A novated finance lease is just a vehicle lease. The fully maintained novated lease and fully maintained novated operating lease both incorporate running costs into the lease; however, the lessor takes on the residual value risk at lease end on the fully maintained novated operating lease.


Employee Benefits of Novated Leases

As with any leasing, a novated lease allows greater flexibility in respect to the amount of vehicle that can be afforded. There is also the option to purchase the vehicle at the end of their lease if they so choose.

With a novated lease, the employee can choose any vehicle they like instead of from a limited variety as with a company car. The employee has full use of the vehicle for private use and can keep the vehicle even if they take employment elsewhere. In this case, the lease responsibility will transfer to the new employer or the employee directly. The employee saves on GST with a novated lease since they are not the lessee. Additionally and perhaps most importantly the employee may have income tax savings.

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