Novated Lease

A Novated Lease is a 3-way arrangement between the employee, the employer and the financier. The lease payments are transferred from the employee to the employer through a ‘Deed of Novation’ and the employer assumes responsibility for making the lease payments to the financier.

The Deed of Novation remains in force until the earlier of the end of the lease term, or until the employee ceases employment. A Fully Maintained Novated Lease is an arrangement where all of the operating costs of the motor vehicle are included as part of your salary package. A Non-Maintained Novated Lease is where the lessee (employee) is responsible for all maintenance and running costs of the vehicle.

The concept of novated leasing is central to salary packaging arrangements between an employee and an employer. Under a salary packaging arrangement, an employee agrees to forego a portion of their salary or wages in return for benefits equal to that amount.

The lease and running costs of the motor vehicle plus fringe benefits tax (if applicable) are deducted from the employee's pre-tax salary and PAYG tax is calculated on the reduced salary or wages. There are a number of benefits associated with novated leases including:

• The employee can lease the motor vehicle of their choice
• The motor vehicle can be leased where the private use of the vehicle is 100%
• When an employee ceases employment, the responsibility for the lease reverts back to the employee
• The motor vehicle does not appear on the employer's Balance Sheet
• The repayments are fixed over the term of the loan
• The term of the novated lease ranges from 12 to 60 months
• As the financier is the owner of the motor vehicle, they claim the GST on the purchase price, meaning that the employee finances the GST-exclusive amount

Under a salary packaging arrangement, the employer is entitled to claim an input tax credit for the GST components of the lease payments and running costs