What is novated leasing?
A novated lease is a three-way agreement between you, your employer and a leasing company that lets you pay for a car — and its running costs — from your salary, with part paid before tax.
How can paying for a car reduce your tax?
Your employer deducts lease and running costs from your salary. Because part of that comes from pre-tax income, your taxable income falls — so you pay less income tax while driving the car you chose.
Pre-tax payments
Part of the lease is paid before tax, lowering your taxable income every pay cycle.
GST savings
You generally don't pay GST on the car's purchase price or on running costs paid through the lease.
Bundled running costs
Fuel or charging, servicing, tyres, rego and insurance roll into one predictable deduction.
Good for employees. Cost-neutral for employers.
For employees
- Lower taxable income through salary packaging
- GST savings on the car and running costs
- One simple payment covering the whole car
- FBT exemption on eligible EVs — the biggest saving of all
For employers
- A valued benefit at little to no cost to the business
- Payments deducted through existing payroll
- No residual risk — the lease follows the employee
- Administration handled by the leasing provider
Novated leasing is a form of salary packaging: a portion of your salary is redirected to the lease before tax is calculated, which is what creates the saving. The exact impact on take-home pay depends on your salary, the car and the FBT method used.