Guest Posts

Novated leasing advantages and disadvantages

Guest post by guest blog post by Platinum Direct Finance

When considering work-related vehicle arrangements, things can feel complicated regardless if you are the employee or the employer. However, Australia has taken a nod from American norms and adopted what is called a “novated” car lease agreement. Novated is an older word that just means a contract is shared, or agreed, between more than two parties. In this case, a novated car or vehicle agreement is shared between the financier, the employer, and the employee.

How does the novated lease work?

The novated lease is very straightforward once you step through it. First, we have the employer, who makes an agreement with the bank to back the financing of the car purchase. In this case, it is the employer not the employee who is providing the “collateral” that the loan will be repaid. Once the agreement is set with the bank, the car is purchased, and then the employer takes the car payment out of the employee’s paycheque before the employee is paid. These payments are made pre-tax, which provides a tax advantage for the employee sometimes this is called “salary packaging.”  Although the employer put up the collateral for the loan, the payments are fully the responsibility of the employee.

Sometimes, all of the operating costs of the vehicle are included in the loan this is called a “fully maintained novated lease” but these are not as popular due to the higher fees. Should the employee leave the company before the loan is up, they are able to keep the vehicle but would assume repayments of the loan according to the terms of contract and may enter into a new novation agreement with their new employer.

What are the benefits of a novated lease?

A novated lease is a great option when an employee needs a vehicle for work-purposes but doesn’t want to drive two cars; it can also be another benefit offered by the employer. There are benefits for both employer and employee:

Benefits to the Employee

  • Huge income tax savings, as the payments are made pre-tax
  • Reduced Goods & Service Tax (GST) expense
  • Can choose a vehicle that suits personal taste, as opposed to a standard company car agreement
  • Large employers get a purchase discount, passing on savings to the employee

Benefits to Employers

  • Offers a valuable benefit to employees, encouraging length of stay in employment
  • Lowers costs and reduces risks of operating company vehicles significantly

In some businesses, employers market this benefit almost like an increase in salary, making it a useful tool for attracting talent. For employees, it is a major savings on a car purchase, regardless of other benefits.

Need more details about a novated vehicle lease? Take a look at the official page from the Australian Taxation Office for more information.


This was a guest blog post by Platinum Direct Finance. Learn more about a fully maintained novated lease from Platinum Direct Finance today.

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