Welcome to the world of novated leasing! If you're wondering how novated leasing works in Australia, you're in the right place. Whether you're new to the concept or just looking for a clearer understanding, we're here to break it down for you. While the process may seem complex with its technical terms and paperwork, we’re committed to making it straightforward to grasp. Let's dive in and simplify how a novated lease can work for you, step by step.

Let’s get started and walk you through the novated lease process step-by-step. But before we dive in, let’s take a moment to cover the basics. 

What to expect?

1. What Is A Novated Lease?
2. Why Should You Take a Novated Lease?
3. How Does Novated Lease Work?
4. A Step-by-Step Process For Getting a Novated Lease
5. Navigate Novated Leasing with Confidence

What Is A Novated Lease?

A novated lease is a way to buy a car through an agreement that involves the employee, employer, and a novated leasing company. When you purchase a car with a novated lease, your taxable income is reduced, as the payments you make towards your car are taken from both your salary before and after tax.

The payment that is deducted from your income bundles, both regular payments and the running costs together, so there is one singular payment being made towards your new vehicle.

Generally, a novated lease is an efficient way to purchase a car whilst receiving tax-saving benefits. 

How Does A Novated Lease Work?

First, you set up a salary sacrifice arrangement with your employer, agreeing to reduce your gross salary by a fixed amount each pay period.

This amount is then directed towards covering the lease payments for your car, whether it's new or used, along with other running costs like registration, fuel, and maintenance. What’s included in your novated lease can vary depending on the provider and the specific plan you choose.

The key advantage is that these payments come out of your pre-tax salary, which can lower your taxable income and reduce your overall tax liability.

In simple terms, you’re using pre-tax dollars to finance your car, potentially offering significant tax savings.

Here are a few more key points to understand how a novated lease works:

• Not all employers offer novated leases as an employee benefit.
• You don't have to use the car for work purposes; it can be for personal use as well.
• Novated leases typically run for a set term - typically from 1 to 5 years.

To find out if a novated lease is right for you, it's a good idea to talk to your employer and a financial advisor to see how much you could potentially save and access if it makes sense for your situation.

Why Should You Consider a Novated Lease?

A novated lease is a great way to drive a new and upgraded car, and receive benefits you wouldn’t otherwise be eligible for if you bought it outright. Generally, it is financially smarter to choose a novated lease. For instance,

• Tax savings: Lease payments are typically taken from your pre-tax salary, so your taxable income is lower and you pay less income tax.
• No GST: You are not required to pay GST on the purchase price of your vehicle and the running expenses.
• One regular payment: With a novated lease, the monthly payments you make towards your vehicle are bundled into one payment. So, this payment includes fuel, insurance, registration, etc.
• Flexible options: Leases can vary in length from 1 to 5 years, according to your needs. At the end of your lease, you have options. You can choose to pay the remaining amount to officially own the vehicle, extend your lease, or sell your car.
• Your vehicle, your choice: You can use your car however you wish. A common misconception is that, as the agreement is made with your employer, the car is solely for business purposes, but this isn’t the case.

How Does A Novated Lease Work?

It sounds intriguing, but how exactly does a novated lease work? Unlike traditional car financing, it operates quite differently.

To begin, a novated lease involves three key players: you, your employer, and a novated lease provider, such as a financier or fleet management company. If you're wondering how it all comes together, we'll break it down for you right here.

Salary Sacrifice Agreement

You and your employer agree to reduce your gross salary by a predetermined amount each pay period. This becomes your 'lease payments' for the car.

Setting Up the Lease

The novated lease provider helps you choose a car, either new or used, and estimate your ongoing running costs, like fuel, registration, maintenance, etc. They then combine the lease payments with these estimated costs into one fixed monthly amount.

Salary Deductions & Payments

Your employer deducts the fixed monthly amount from your pre-tax salary. They then use that money to cover the following:

• Lease payments to the financier for the car
• Agreed-upon running costs, depending on the plan
• Pay any applicable GST (Goods and Services Tax) on the car and running costs since they're coming out of pre-tax salary

Getting The Car

The novated lease provider handles the car registration and insurance on your behalf, and you can use the car for both personal and work purposes, considering your employer's policy.

Managing Your Lease

Throughout the lease term, lasting 1-5 years on average, you make any additional running cost payments directly to the provider or manage them through a fuel card system.

Here's the key benefit–by paying for the lease and some running costs with pre-tax salary, you reduce your taxable income. You can enjoy lower income tax and GST on the car purchase price right away.

A Step-By-Step Process For Getting A Novated Lease

So, how does it all work? To get started with a novated lease, all you need to do is the following:

Check Eligibility and Get A Quote

The first step will be to confirm with your employer that they offer novated leases as a benefit. Not all employers participate in the program, but we can get them started at Novated Choice.

Novated Choice will give you a free quote. All you need to do is supply them with the details of your desired car, your estimated kilometres driven, and salary information.

Approval

We’ll help you apply for lease approval. Once approved, the agreement will be prepared, and the terms and conditions will be clearly outlined.

Choosing Your Car

Now that your lease has been approved and agreed upon, you can choose the car you want and ensure it meets your employer’s policy.

Finalising

It’s important to review the details carefully. At Novated Choice, we’ll make sure to explain everything so there are no surprises. But at this stage, all that’s left to do is sign and consider any extras!

Our Ongoing Support

We’ll make sure everything is correct before we hand over your car. This includes car registration details and insurance. From here on out, we’ll manage your novated lease agreement and ensure everything runs smoothly and seamlessly. 

Here are some additional tips on your novated lease plan:

• Consider seeking independent financial advice before getting a novated lease to ensure it suits your financial situation.
• Be sure you can comfortably afford the monthly payments throughout the lease term.

Navigate Novated Leasing With Confidence

A novated lease won’t look the same for everyone, but our support does. We’ll help you navigate your agreement and make sure that it works for you and your lifestyle. If you’re new to novated leases, it can be overwhelming to understand. At Novated Choice, we’ll explain the details of your agreement so you know what to expect.

If you have any questions, that’s what our team are here for! Contact us today, and we’ll have you driving your new car in no time.

FAQs

Who officially owns the car during the lease agreement?

We’re committed to transparency. So, officially, during your lease agreement, the financier owns the car and you have exclusive use and control over it. Once your lease term ends, you can choose to officially own the car if you wish.

What happens to my lease if I change jobs?

Your novated lease is your responsibility if you change jobs, and your employer is subsequently removed from the agreement. You can either transfer your lease to your new employer or continue to pay for your car from your post-tax salary.