Novated Lease

Just What Is A Novated Lease, Anyway?

Wednesday, 30 November 2011 14:26

One of the things that we talk about quite a bit here at Fincar car finance is a novated lease.  If you’ve never heard of a novated lease before (possibly because you’ve only recently come to live in Australia), the mention of these things possibly leaves you scratching your head.  You look at the dictionary: it’s not in some versions.  Maybe you look at the word “novated” and try to figure it out from the root words in it.  Is it something to do with innovation?  Something to do with renovation?  Certainly, there’s that “nova” bit that comes from the Latin word meaning “new”.

A novated lease is something that seems to be unique to Australia – although something with the same name happens in the UK, apparently – and is one of those things that comes as part of a salary package and is negotiated in a contract with your employer.  If you can get one, your employer probably told you all about one when you got the job.  So if you’re interested in getting a new car and you’re just in a beginning job, then a novated lease isn’t for you and you should probably look at some other option.

In plain English, a novated lease is where the company you work for leases a vehicle on your behalf.  The payments for that leased vehicle come out of your pay package before tax.  However, before you get all excited about not having to pay tax on the chunk that comes out to pay for that novated lease, these leases do attract fringe benefit tax.  On the other hand, you don’t have to pay as much GST on the vehicle – your employer will be able to handle (and claim back) some of this tax.  And because a large company can often get a better deal because of volume, you can get a better deal on the car.  Another benefit for you is that if you have to change jobs, you can take the car (and the novated lease) with you, in some cases (although, if your old job saw you driving around in a trade van, you might not want to take it with you if you change careers to an office job – this is something that will have to be discussed with your bosses, old and new).

The advantages of a novated lease for the employer are that the employee shoulders more of the risk involved in driving a lease vehicle – the employer faces less risk than they do when they have a fleet of company cars.  Also, if your boss wants to reward all your hard work and increase your salary but the bean-counters in Accounts say that a plain raise isn’t quite doable, the novated lease has the same effect: giving you more without stretching the company’s budget too much.

An Australian novated lease is quite different from what they mean by “novated lease” in the UK.  Over there, a novated lease is just an ordinary lease that has been transferred from one person to another, with the consent of the lessor, of course.  It’s got nothing to do with your pay packet or company cars. 

If you’re new to Australia – maybe you’re a new immigrant from the UK – and want to know more about how novated leases work here Down Under, talk to us and ask us any questions so you know how it all works.