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What is a novated lease?

A novated lease is a three-way arrangement between you, your employer, and a financier. Your employer leases the vehicle on your behalf and deducts lease and agreed running costs from your salary — often with a mix of pre-tax and post-tax deductions depending on legislation and employer policy.

When structured correctly, packaging can reduce the income tax you pay on money you would have spent on the car anyway, and gives you predictable deductions for registration, insurance, servicing, fuel or charging, tyres, and finance repayments. The exact structure must comply with fringe benefits tax rules and your payroll team’s salary packaging scheme.

You choose a vehicle that meets financier and employer criteria. The lease runs for a fixed term with an agreed residual (balloon) at the end. Throughout the lease, you enjoy use of the car while your novation administrator coordinates budgets, claims, and sometimes fuel cards.

The novated lease running costs calculations

Running cost budgets estimate what you are likely to spend each year on fuel or energy, tyres, maintenance, registration, insurance, and other agreed items. If actual spending is lower than budgeted, surplus may be returned or carried forward per your plan rules; if higher, you may need to top up or adjust deductions.

Clarifying the balloon payment and residual value

The residual — often called a balloon — is the lump sum owed to the financier at the end of the lease if you want to own the vehicle. The ATO publishes minimum residual percentages by lease term; your contract sets the actual amount.

Choosing a higher residual can lower periodic payments but increases what you owe at the end. You should plan for that outcome early: save, sell or trade the car, refinance, or repay from other funds. For more detail, see our residual value guide.

Benefits of a novated lease

• Potential income tax savings on packaged car costs where permitted.
• One regular deduction instead of juggling multiple bills.
• Budgeted running costs for fuel, servicing, registration, insurance, and tyres.
• Access to fleet-style support and claims handling from your administrator.
• Flexibility to choose a wide range of new and used vehicles subject to policy.

Finance approval conditions

Lease approval is subject to credit assessment by the financier alongside your employer agreeing to the novation. You will typically need to meet identity verification, serviceability, and credit history standards. Employers may impose additional caps on packaging or vehicle types.

This page does not constitute an offer of credit. Rates, fees, and approval outcomes are determined only after a full application. If your circumstances change during the lease, contact your administrator and payroll team promptly.