A Novated Lease is a three way agreement between the Lessor (financier), the Lessee (borrower/employee) and the Lessee’s employer. It allows the Lessee to have the ability to salary sacrifice their Lease repayment, which can reduce their taxable income which can save them on income tax.

The Car Lease Agreement is structured in the same way as a Finance Lease between the Lessor and the Lessee. The additional agreement, referred to as the Novation Agreement is where the Lessee’s employer agrees to pay the rentals on behalf of the Lessee.

If the Lessee’s employer is registered for GST, they may be able to claim the GST as an input tax credit prior to salary sacrificing the repayments from the Lessee’s wages, in effect giving the Lessee use of the vehicle GST free, as the Lessor would calculate its repayments on the GST exclusive amount of the purchase, due to the ownership being the Lessors and the Lessor claiming the GST from the purchase.

You may also have the option to include ongoing running costs into the Novated Lease Agreement to have an all in one simple payment, which is deducted from your salary. You may include costs such as annual registration, CTP and Comprehensive insurance. Other costs such as the Stamp Duty on purchase, fuel, tyres, and servicing, roadside assistance and vehicle and loan protection insurances can also be a part of the Novated Lease Agreement. This would often be referred to as a Fully Maintained Novated Lease.

If the Lessee’s employment was terminated with the business noted in the Novation Agreement prior to the term of the Lease, all repayment obligations would become the Lessees including the GST in the rental payment. This is why Novated Leases are becoming popular with employers as if their employees leave, the employer is not left with any Lease obligations.

The ability to have a new employer take on a new Novation Agreement may be available subject to the employer and also the Lessor. Much like a Finance Lease terms are between 12 months to 60 months and would also have a Residual Value at the end of the term of the Lease.

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