Novated Lease Australia

A novated lease and a car loan are both ways of financing a vehicle, with no restrictions on whether the vehicle is used for personal or business purposes.

The main with a novated lease vs a car loan the main difference is in how the vehicle is financed and taxed:

A common misconception among people considering a novated lease is that it’s 'only for new cars.’ Not so.

You can also a novated lease to finance a used car. In fact, you can get a novated lease for more or less any car, provided it:

You can typically also use a novated lease whether you buy through a car dealership or private seller. Just bear in mind there generally is no GST saving with a private sale.

An important point to bear in mind is that your employer may need to pay fringe benefits tax (FBT) on the novated lease benefit provided to you. This is a tax that applies to most non-salary employee benefits. Employers typically pass this cost onto the employee.

But in 2022 the Australian government announced that low- and zero-emission vehicles – electric cars (EVs) and plugin-hybrids (PHEVs) – would be exempt from FBT up to the luxury car tax threshold.

This means eligible electric car novated leases are eligible for significant further savings.

You have three options available at the end of your novated lease:

The balloon or ‘residual’ amount is a pre-determined lump-sum repayment made at the end of the novated lease term.

The residual amount will vary, and shorter terms will have higher residuals attached.

If you are using the car to travel extensively (35,000 km or more per year) you can usually opt for a lower residual.

Speak to your leasing provider about this.

The short answer is no. There used to be a requirement, but that was over 10 years ago. It doesn't matter whether you drive 10,000 km or 30,000 km or whether you drive for personal or business use.

If you are self-employed — i.e. are not paid a salary by an employee or receiving a salary through your own company — you will need to look at alternative forms of vehicle finance, such as a chattel mortgage for business vehicles, or low-doc car loan.

Novated leasing allows for a maximum vehicle payload of 1,000 kg — if you want to finance heavy machinery, a non-passenger vehicle, or vehicles with a heavier payload than the maximum limit, you may wish to consider a chattel mortgage or equipment finance as alternatives.

In salary packaging a vehicle, Fringe Benefits Tax (FBT) is a tax paid by an employer for certain benefits received by employees. The Employee Contribution Method (ECM) is a way to reduce the FBT liability to a nil balance by having the employee make post-tax contributions to maintaining the vehicle.

The lowest salary you need for a novated lease will depend on the cost of the vehicle being novated. Novated leasing approval is dependent on your capacity as a borrower, and with a minimum vehicle price of $15,000 on a 5-year term with a 25% balloon payment, even employees on a modest salary can take advantage of novated lease benefits.

If you leave your job during the term of your novated lease, you will still be responsible for finance payments on the vehicle. The lease will be “de-novated”, the running costs are removed from the agreement and repayments will continue much the same way as a standard car loan.

When you are employed again — provided your new employer agrees to salary packaging the vehicle — the lease can be re-novated, and revert back to its initial state including running costs.

If your new employer accepts novated leasing, then you will simply be able to transfer your lease to them. There is a bit of paperwork involved, but largely this is a seamless process.