novated-lease

Novated Lease

Find out what you need to know about novated leases to decide if they are the right option for you.

If you’re looking for a way to finance a vehicle purchase and want to take advantage of tax benefits, easy loan management and fixed repayments, then you might want to consider a novated lease.

A novated lease lets you use and pay for a vehicle via salary-sacrificing, plus it gives you the option of having all operating and maintenance costs paid for using your pre-tax income.

Before you take out a novated lease it’s important to understand the ins and outs, the advantages and drawbacks. But don’t worry, we’ve put them all together for you in this guide.

What is a novated lease?

A novated lease is a type of financing option that helps you purchase a vehicle. It involves an agreement between you, your employer and a third-party financier whereby you take out a lease and your employer makes the lease repayments and operating costs out of your pre-tax income. While the responsibility for these repayments is still yours, it is your employer who will make these payments. The lease, therefore, becomes a part of your salary packaging.

Stratton Finance Novated Lease

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Looking to purchase a vehicle through a novated lease? Speak to the experts at Stratton Finance.

  • Lease terms of up to 5 years
  • Purchase any vehicle you like
  • Fixed monthly repayments

Please note that the rates, fees and features mentioned here were correct at the time of publication.

What types of novated leases are there?

  • Novated operating lease. This type of lease allows you to have use of the vehicle for the duration of the lease, and at the end of the lease, you have no further obligations. You also have no further access to the vehicle. The vehicle will be inspected on its return and it must be in good condition, apart from normal wear and tear.
  • Novated finance lease. This type of lease requires you to guarantee upfront the residual value of the vehicle. At the end of the lease term, if the valuation is less than that value, then you will be responsible for the shortfall. Note that it will be you and not your employer who will need to pay this.
  • Fully-maintained operating lease. A fully-maintained lease involves all operating costs of the vehicle being included in the salary package.
  • Non-maintained operating lease. Under this type of lease, you will be responsible for the operating costs of the vehicle, including maintenance and running costs. Only the lease repayments will come out of your pre-tax income.
  • Budgeted finance lease. This is an option offered by some financiers that allow you to budget for your maintenance expenses and set limits for the amount you’d like to spend.

leasing vs buying a car

Benefits of a novated lease

For the employee

  • Cost and tax benefits. As you’re paying for your car with the pre-tax income you can take advantage of a lower rate of tax on the benefit than if you were to pay with your after-tax income. You can also stand to benefit from corporate fleet discount programs that can reduce the retail price of a vehicle.
  • Easy loan management. As the lease payments and, depending on the option you choose, running costs, come straight out of your salary you don’t have to worry about budgeting and managing them yourself.
  • Vehicle options. A range of vehicles can be financed with a novated lease, including both new and used vehicles.
  • After-lease sale benefits. If you decide to sell your vehicle after the lease is up, any equity built up in the vehicle that you profit from in the sale will be tax-free.
  • No usage restrictions. There are no limitations on the way you use the vehicle, and you can use it for business or personal use as much as you like.

For the employer

  • A way to offer incentives. A novated lease is a way to incentivise employees with little expense to your business.
  • Limited risk. You won’t be responsible for the vehicle if your employee leaves before the lease is up.
  • Not attached to the business. Novated leases are not considered an asset or liability of the business.
  • No burden of a company fleet. It gives a way for your employees to access discounted vehicle leasing through your company without the burden of your business managing a company fleet.

What to know about novated leases and tax

One key benefit of a novated lease is that you don’t have to pay GST. As the vehicle is sold to the financier and then leased to you, they are liable to pay the GST on the vehicle, but they are able to pass this GST on to the tax office.

In terms of the other tax options, this depends on the method you choose. There are two methods you can opt for when taking out a novated lease: the Fringe Benefits Tax method or the Employee Contribution Method.

  • Fringe Benefits Tax

When you choose this method the entire amount of your lease payments are deducted from your pre-tax income, saving that portion of your salary from income tax. Although as your employer is providing you this lease as a benefit, the lease is subject to Fringe Benefits Tax (FBT), which you are responsible for. FBT is calculated using the Statutory Formula method and based on the distance you’re likely to travel during the ‘FBT year’, which runs from April 1st to 31st March.

There is also a ‘days not available’ option which involves your FBT being reduced when your vehicle is unavailable for travel. This may be because your vehicle is in for repairs, you lease your vehicle on company premises or lend the vehicle to an authorised person for a whole business day.

In May 2011 the government introduced transitional rules regarding the calculation of cars using FBT using a standard statutory rate of 20%. Financiers help you track and calculate your ongoing FBT obligations in accordance with ATO guidelines. Most financiers will offer something like a fuel card that can track your fuel usage over the year.

  • The Employee Contribution Method

This method involves both pre-tax and post-tax deductions from your income. There are benefits to this method, particularly if your salary is below $180,000. If you contribute part of your post-tax salary you can reduce the rate of FBT from 46.5% to your own marginal income tax rate, which might be as low as 30%, depending on your income. This can ultimately reduce the cost of salary packaging your vehicle. This option is available to both fully-maintained and non-maintained novated leases.

How to arrange a novated lease

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While there are more tax and monetary considerations when it comes to novated leases, when you choose the right financier the process is not complicated. Here is a typical process that you can expect:

  • Step 1: Shop around for a vehicle and get a quote. Ensure that the quote lists all options including projected operating costs, vehicle options and the vehicle cost.
  • Step 2: Estimate how many kilometres you’ll be travelling over the course of a year. You can do this by tracking your usage over a normal week and factoring in holidays and other times when you might use you car more.
  • Step 3: Decide if you want a fully maintained or non-maintained novated lease.
  • Step 4: Contact your company’s financial consultant and discuss your options. Together you can prepare an estimated salary package, which you can sign when you’re happy with it.
  • Step 5: Compare your novated lease options and apply with your chosen provider.
  • Step 6: Provide your car dealer’s details to your financial consultant so that the Novated Lease Agreement can be prepared and signed.
  • Step 7: Compare your comprehensive car insurance options and apply for your chosen provider. Then get your cover approved by your financial consultant.
  • Step 8: Your financial consultant will organise the dealer to be paid, and if you have a fully-maintained novated lease then they will also organise the insurance to be paid as well.
  • Step 9: You can collect your vehicle and receive your fuel card from your financier so you can start using your car.

Frequently asked questions

What types of vehicles can be used for a novated lease?

There are really no restrictions as to the type of vehicle that can be used. In some cases, you may even be able to use a vehicle that you are already paying off. Vehicles can also be new or used.

What happens if my employment is terminated?

If your enrollment is terminated you can take your novated lease with you to your new employer, you can continue making repayments directly to your financier, or you can terminate the lease early and pay it out.

How long do novated leases take to establish?

This depends on the financier you go with, although will generally take approximately two weeks to a month.

Compare a range of car loans

Whilst we don't directly compare novated leases, the comparison tables below will give you an idea of how a car loan compares to novated leases.

Latitude New and Used Car Loan

Latitude New and Used Car Loan

From

6.99 % p.a.

fixed rate

From

8.10 % p.a.

comparison rate

  • Competitive low rate
  • Up to 7 years to repay
  • New or used vehicles accepted
Security Logo

100% confidential application

Latitude New and Used Car Loan

A competitive fixed rate loan available for new and used vehicles.

  • Interest rate from: 6.99% p.a.
  • Comparison rate: 8.10% p.a.
  • Interest rate type: Fixed
  • Application fee: $295
  • Minimum loan amount: $5,000
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Rates last updated November 15th, 2018
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Monthly Service Fee Application Fee Product Description Monthly Repayment
Latitude New and Used Car Loan
From 6.99% (fixed)
8.1%
$5,000
1 to 7 years
$10
$295
You'll receive a fixed rate between 6.99% p.a. and 14.99% p.a. based on your risk profile
Apply for a loan from $5,000 to finance a new or used car. Flexible repayments and options to finance a classic car.
Loans.com.au - New Car Loan
5.44% (fixed)
5.99%
$5,000
3 to 5 years
$0
$400
You'll receive a fixed rate of 5.44% p.a.
Finance a new car and benefit from features such as fast approval, no ongoing fees and an optional balloon payment.
IMB New Car Loan
5.89% (fixed)
6.24%
$2,000
1 to 7 years
$0
$250
You'll receive a fixed rate of 5.89% p.a.
A low minimum borrowing amount of $2,000 that you can use to purchase a new car or one up to two years old.
Stratton Finance New Car Loan
From 5.14% (fixed)
5.8%
$18,000
1 to 7 years
$8.90
$457 (for private seller vehicles this fee is $608)
You'll receive a fixed or variable rate depending on the lender you are approved with
Apply for up to $100,000 and use cash or trade in a vehicle to use as a deposit. Optional balloon payment available.
Beyond Bank Low Rate Car Loan
From 5.69% (fixed)
5.97%
$25,000
1 to 7 years
$0
$175
You'll receive a fixed rate of 5.69% p.a.
Take advantage of a competitive rate, pre-approval and no early repayment fees when you finance a car under two years old.
St.George Secured Personal Loan - Fixed Rate
From 8.49% (fixed)
9.6%
$3,000
1 to 5 years
$12
$195
You'll receive a fixed rate from 8.49% p.a. based on the value of your car
Get a competitive rate and apply for a larger loan up to $80,000 when you attach a new or used car as security to the loan.
Australian Military Bank Car Loan
From 5.71% (fixed)
6.57%
$1,000
1 to 7 years
$10
from $100 to $500
You'll receive a fixed rate between 5.71% p.a. and 8.66% p.a. based on your personal credit history
A flexible loan to help you finance a car, motorbike or boat up to five years old.
Westpac Car Loan
From 8.49% (fixed)
9.67%
$10,000
1 to 7 years
$12
$250
You'll receive a fixed rate of 8.49% p.a.
Finance a new or used car and benefit from convenient features for car buyers including a car search tool and the option to borrow extra for on-road costs.
RACV New Car Loans
From 5.99% (fixed)
6.55%
$15,000
1 to 7 years
$0
$399
You'll receive a fixed rate of 5.99% p.a.
A larger loan of $15,000 or more to help you buy a new or used car. 5-hour pre approval available and no ongoing fees.
IMB Secured Personal Loan
6.89% (fixed)
7.24%
$2,000
1 to 5 years
$0
$250
You'll receive a fixed rate of 6.89% p.a.
Benefit from this competitive rate by securing the loan with a vehicle up to 6 years old. Use this flexible loan for any purpose.
Latitude Personal Loan (Secured)
From 12.99% (fixed)
14.2%
$3,000
2 to 7 years
$13
$250 (Loans under $4000 - $140)
You'll receive a fixed rate between 12.99% p.a. and 28.99% p.a. based on your risk profile
Lock in a competitive variable rate when you offer security. Loan can be used for any purpose and repayments are flexible.

Compare up to 4 providers

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Car Loan Offers

Important Information*
IMB New Car Loan

You'll receive a fixed rate of 5.89% p.a.
A low minimum borrowing amount of $2,000 that you can use to purchase a new car or one up to two years old.

Loans.com.au - New Car Loan

You'll receive a fixed rate of 5.44% p.a.
Finance a new car and benefit from features such as fast approval, no ongoing fees and an optional balloon payment.

Latitude New and Used Car Loan

You'll receive a fixed rate between 6.99% p.a. and 14.99% p.a. based on your risk profile
Apply for a loan from $5,000 to finance a new or used car. Flexible repayments and options to finance a classic car.

Stratton Finance New Car Loan

You'll receive a fixed or variable rate depending on the lender you are approved with
Apply for up to $100,000 and use cash or trade in a vehicle to use as a deposit. Optional balloon payment available.

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2 Responses

  1. Default Gravatar
    NitinSeptember 16, 2018

    Your credit scoring system show I’ve got a score of 710, my company is offering a novated lease through a fleet company. My concern is that I won’t get approved because on another free credit site my score is low.

    Do leasing companies do credit checks? I’m confused because of the 2 different scores I’ve got.

    • finder Customer Care
      JeniSeptember 16, 2018Staff

      Hi Nitin,

      Thank you for getting in touch with finder.

      There are 4 major credit reporting agencies in Australia with different scoring system – Experian, Equifax, Tasmanian Collection Service and Dun & Bradstreet.

      We obtain a user’s credit score from Experian. If you got a low score from the other reference that the fleet company got, it is best to ask which credit reporting agency was that from and check your credit history to verify the result.

      Leasing companies don’t do credit checks however they use their selected credit reporting bureau as reference for loan applications.

      I hope this helps.

      Please feel free to reach out to us if you have any other enquiries.

      Thank you and have a wonderful day!

      Cheers,
      Jeni

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