Novated Lease
A novated lease is a type of finance lease. The main point of difference between the two being that instead of you (the employee) making the finance repayments, your employer makes the repayments on your behalf out of your pre-tax income.
A novated lease is available primarily for PAYG employees who have a salary package that includes a work vehicle.
In addition to the standard finance lease arrangement between you the employee and the lender there is a novation agreement between your employer and the lender that allows your employer to make the lease payments.
The employer makes the finance payments and the employee’s gross income is reduced by the amount to cover the repayment obligation. If the employee’s employment is terminated the novation agreement is cancelled and the repayments are made by the employee.
Key Benefits of a Novated Lease
Reduces employee’s taxable income
Ability to make an offer to purchase the asset at end of term or hand back to the lender
Vehicle use is unrestricted and includes private usage