Novated leasing has become an increasingly popular way for Australian employees to finance a car — combining convenience with potential tax savings. But what exactly is novated leasing, and how does it work?

In this article, we break down the basics of novated leasing and explore why it might be the right fit for your next vehicle purchase.

What Is a Novated Lease?

A novated lease is a three-way agreement between an employee, their employer, and a finance provider. Under this arrangement, the employer agrees to take on the responsibility of lease payments using the employee’s pre-tax salary, a process known as salary packaging.

This makes novated leasing a tax-effective way to drive the car you want, often with reduced running costs.

How Does Novated Leasing Work?

Here’s how a novated lease typically works in practice:

Step 1: Choose Your Car

You select the new or used vehicle you want — from any dealership and of any make or model (within the finance provider’s guidelines).

Step 2: Finance Is Arranged

A lease agreement is established between you and a financier. This includes the lease term (typically 1–5 years), monthly repayments, and residual value (the car’s value at the end of the lease).

Step 3: Novation Agreement Signed

Your employer signs a novation agreement, taking over the lease payment obligations while deducting the lease costs from your gross (pre-tax) salary.

Step 4: Drive and Save

You get to drive the car while benefiting from reduced taxable income. The lease also covers running costs such as:

• Fuel or EV charging

• Registration

• Servicing and maintenance

• Insurance

• Tyres