Novated Lease

The Novated Lease allows for the inclusion of a motor vehicle in an employee’s salary package. It is often viewed as an attractive benefit for a number of reasons.

How the Novated Lease Works

Novated Leasing can be a simple arrangement. Subject to the employer’s policy, the employee selects the vehicle they want, the vehicle can range from a standard family sedan to a sports model or even a large four wheel drive. You can hear the employer’s crying now, I don’t want the expense of a large 4WD on the fleet. Employer’s note, the employee bears most of the running cost from his salary package. The employee is the primary lessee, he arranges the lease in his own name and must meet the financiers credit criteria. Once approved the employer “novates” the lease.

This means:

• The employer agrees to meet the monthly payment obligation to the financier;
• The employee’s gross income is reduced by an amount to cover this repayment obligation, the amount allowed for running costs and Fringe Benefits Tax;
• The vehicle is provided to the employee for unrestricted use, including private use
• Some employer’s reimburse the employees “salary package” with an allowance for business use, based on cents per kilometre travelled for busine

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Changing Employment

If the employee leaves his employment, the novation agreement automatically ceases and the employer has no further obligations to the financier. The now ex-employee (Lessee) must make the monthly payments.

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Disposing of the Vehicle

Like all finance lease transactions, at the end of the lease term there are a number of options available, including:

• Surrendering the vehicle to the financier
• The employee can make an offer to purchase the vehicle from the financier;
• The employee can trade the vehicle for a new vehicle through a licenced dealer
• The employee and employer entering into a new lease for the same vehicle for an extended term of say twelve months to reduce the residual to an acceptable and market value.

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