A Novated Lease is a three-party agreement. Under a Novated Lease Agreement, an employee can enter into a car lease agreement where the payments of the lease are then ‘novated’ to their employer. The employee enters in to the lease agreement and a second document known as a ‘Novation Agreement’ is then used to transfer the payments’ obligation to the employer. The Novation Agreement can cover the entire payment or portions thereof. Upon entering the novated lease agreement, the employer is considered to be the party leasing the vehicle which would then be treated as a Business Vehicle providing income tax and GST benefits. In most cases, the employer deducts the payments from the employee’s salary package which can also include the car running and maintenance costs.


  • You select the car for which you wish to obtain lease finance.
  • You negotiate the price of the car.
  • You ensure that your employer is agreeable to enter into the lease payments arrangement with the financier.
  • You select the term of the lease (1-5 years) and the frequency of the payments.
  • A residual value may be set, being an estimate of the vehicle value at the end of the lease period.
  • The Financier purchases the equipment on your behalf and you enter into the lease agreement.
  • The employer then enters into the ‘Novation Agreement’ taking responsibility for making the payments for the duration of your employment or end of the lease agreement.


A Novated Lease can reduce your Income Tax resulting in increasing net income.

As the Lease Finance Payments are deducted from your gross salary, your taxable income is reduced and the payable tax rate applied to you is also reduced. In addition, car running and maintenance expenses can also be included in the deductions offering you further reductions on your income tax.

Holding a Novated Lease means you only pay for the car value exclusive of GST. This translates into thousands of dollars of savings on the value of the new car.

In most cases, the employer’s salary package structure allows you to save the GST additions on all running and maintenance costs of the car. As the car is considered a business vehicle, the employer can claim paid GST in connection with running and maintenance costs of the car and passing on the savings to you via your salary package.


At the end of a Novated Lease Contract, the agreed residual value can be paid and the lease would then be completely fulfilled. The residual value is calculated in accordance with the relevant rules of the ATO and is GST inclusive.


  • Off-Balance Sheet.
  • Tax Deduction for lease rentals.
  • Should the employee leave the car is no longer your responsibility.
  • Your single obligation is to make monthly rentals.
  • Administration is relieved of cost burden related to acquisition and disposal of car.
  • Direct debiting of your monthly payments can be arranged saving you time and money.


  • Freedom to choose the car and be the registered owner.
  • The ability to transfer (novate) the lease to a new employer.
  • Unrestricted private use at a prefixed and controlled cost.
  • Cash savings through the utilization of Pre-tax salary (salary sacrifice).