Choosing how to finance your next car can feel overwhelming, especially with so many options available. One increasingly popular choice in Australia is a novated lease—a flexible, tax-effective way to drive the car you want while spreading costs over time.
If you’ve heard of novated leasing but aren’t entirely sure how it works, this guide will walk you through the essentials.
A novated lease is a three-way agreement between:
You (the employee) – the person driving the car,
Your employer – who agrees to make lease payments on your behalf from your salary, and
A leasing company – who provides the finance for the vehicle.
Your employer deducts the lease payments from your pre-tax salary through salary packaging, which may reduce your taxable income and save you money. You can choose a new, used, or existing vehicle for your lease, making it a versatile option for many drivers.
Choose Your Car – You select the vehicle you want, either new or used.
Set Up the Lease – The leasing company finances the car and organises insurance, registration, and running costs if desired.
Salary Packaging – Your employer deducts the payments (including running costs) from your pre-tax salary.
Enjoy the Benefits – You get to drive your chosen car, often with lower tax obligations and simplified budgeting.
At the end of the lease, you can either:
Pay the residual value to own the car,
Trade it in for a new vehicle, or
Refinance the residual and continue leasing.
Tax Savings: Lease payments come out of your pre-tax income, reducing your taxable income.
Cash Flow Friendly: Spreading costs makes budgeting easier and avoids large upfront payments.
Flexibility: Choose the car that suits your needs, from a practical SUV to an electric vehicle.
Simplified Management: Bundling running costs (fuel, servicing, insurance) into one regular payment makes life easier.
EV Incentives: Electric vehicles may be exempt from Fringe Benefits Tax (FBT), making them even more cost-effective.
Novated leases are typically available to full-time or part-time employees whose employers offer salary packaging. Many Australian businesses use novated leasing as a cost-neutral way to enhance employee benefits and attract talent.
If you’re looking for a tax-efficient, flexible way to drive a car without dipping into savings, a novated lease can be a smart option. It works best for people who want predictable costs, value convenience, and are comfortable with a long-term agreement.
Before signing up, speak with your employer and a leasing consultant to understand your potential savings, residual obligations, and whether novated leasing aligns with your financial goals.
Novated leasing is no longer just a niche employee perk—it’s becoming a mainstream, cost-effective way to drive your next vehicle. Whether you’re eyeing an electric car or just want a simpler way to manage vehicle expenses, this arrangement offers flexibility and potential tax advantages worth exploring.
Whether you’re looking to maximise tax savings, simplify your car expenses, or switch to an EV, Prosperity Smart Drive can help you find the right novated lease solution.
