What is a novated lease?
Australia's unique three-way salary packaging arrangement that lets employees lease a vehicle from pre-tax income.
The basics
A novated lease is a three-way agreement between you (the employee), your employer, and a finance company. It allows you to lease a vehicle and pay for it — along with many running costs — from your pre-tax salary through a salary packaging arrangement.
The word "novated" comes from the legal process of novation: you enter a lease with a financier, then transfer your payment obligations to your employer via a deed of novation. Your employer deducts lease payments from your salary each pay cycle and remits them to the finance company on your behalf.
Ownership during the lease
During the lease term, the finance company owns the vehicle — not you. You have full use of the car for personal and work purposes. The finance company purchases the vehicle, claims GST input tax credits, and holds title until the lease ends.
At the end of the lease, you can pay the residual (balloon) value to take ownership, refinance the residual into a new lease, trade in the vehicle, or return it to the financier.
Why it exists
Novated leasing is unique to Australia and is one of the most tax-effective ways for employees to finance and run a vehicle. By paying from pre-tax salary, you reduce your taxable income. Combined with GST savings on the purchase price and — for eligible EVs — FBT exemption, the total cost of car ownership can be thousands of dollars lower per year.
- Available to most Australian employees whose employer offers salary packaging
- Works with new and used vehicles, any make or model
- Can package finance repayments plus running costs (fuel, insurance, servicing)
- Particularly beneficial for employees earning $80,000+ gross annually
Key takeaways
- A novated lease is salary packaging for a car — not a standard car loan
- Three parties: you, your employer, and the finance company
- You don't own the car during the lease; ownership comes at lease end via residual payment
- The novation deed transfers payment obligations to your employer while you remain employed