A novated lease is a three-way agreement between you, your employer, and a lender that lets you finance a car using your pre-tax salary. Think of it as a salary packaging arrangement that bundles your car payments and running costs, like fuel, maintenance, and insurance, into one convenient payment. It’s a tax-effective and hassle-free way to get behind the wheel of the car you want, without stretching your budget.

With a novated lease, your employer agrees to deduct your car payments from your pre-tax salary and forward them to the lender. This arrangement reduces your taxable income, which means you could pay less tax overall. The lease covers the cost of the car and can also include running costs like fuel, servicing, and insurance—rolled into one simple payment.

You get the car of your choice, and as long as the lease is active, your employer helps manage the payments. At the end of the lease term, you’ll have options to buy the car, extend the lease, or upgrade to a new vehicle. It’s a flexible and tax-effective way to enjoy your next car.

A novated lease makes managing your car expenses simple and stress-free. Here are some of the many benefits of a novated lease:

• Tax Savings: Keep more of your hard-earned money by reducing your taxable income. By bundling car payments and running costs like fuel and insurance into your pre-tax salary, a novated lease helps you save where it matters most.
• Convenience: Simplify your finances with one easy payment that covers everything from loan repayments to running costs, so you don’t have to juggle multiple bills.
• Flexibility: Whether it’s upgrading to a new model or holding onto your current car, a novated lease lets you choose what works best when your lease ends.
• Cost Control: Get more for your money with access to fleet discounts and competitive rates that make leasing more affordable.

With a novated lease, you’ll spend less time worrying about car costs and more time enjoying the drive. Our team makes it easy every step of the way.

Charge Allocation (Formerly Fuel Expenses):

In our Novated Lease calculator, we have accounted for a yearly allocation of $750 for charging your vehicle. This allocation can be adjusted before starting the lease or at any point during the lease term based on your usage.

Tyres:

Estimating a tyre budget in a Novated Lease calculator is a bit more intricate due to the varying costs of different types of tyres. For instance, lower profile tyres might be pricier but important to drivers. In our Novated Lease calculator, we determine an average cost for each vehicle category we consider. We then apply this cost to a typical timeframe for changing tyres, and this sets the budget.

(Average cost of a tyre X 4) = Total cost of a set of tyres

Your annual kilometres driven X the lease term in years = Total kilometers

Total kilometers / 35,000 kms (average tyre change period) = Sets of tyres needed

Sets of tyres needed X Cost of the set / lease years = Total annual tyre budget

For example

If Mike drives 15,000 kms per year and is beginning a 5-year lease, with the cost of his tyre set being $850:

15,000 X 5 = 75,000 kms / 35,000 = 2.14 sets of tyres X $850 per set = $1,819 / 5 years = $363.80 per year

Maintenance:

While most cars require servicing every 10,000 to 15,000 kms, the service cost depends on your chosen vehicle. However, Electric Vehicles (EVs) generally need less servicing, so we allocate $350 per year.

Registration and Insurance:

Estimates for registration and insurance renewals are based on the type of vehicle you select.

Finance:

Our finance structure follows a standard novated lease calculation with slight variations. The lease starts two months in arrears, meaning the first two months have $0.00 payments, which are distributed across the remaining lease term. For instance, in a 5-year (60-month) lease, there would be 60 payments, but the 1st and 2nd months are $0.00, followed by 58 payments of $400, for example. This arrangement lets the Salary Packaging company arrange services and deductions before the initial payment is due.

The initial year's Comprehensive Car Insurance can be financed if needed, saving you from an upfront insurance cost. When insurance is due for renewal in 12 months, sending in the renewal notice allows the Salary Packaging provider to cover this using funds from your Novated Lease account.

Residual Value:

The residual value, also known as the balloon payment, is the amount due at lease end. The Australian Taxation Office (ATO) permits car payments through your employer. This setup saves on taxes and is convenient, but for tax reasons, the equity in the vehicle cannot be retained. Hence, the vehicle needs to be paid back based on a realistic market value at lease end.

The good news is, having a residual value makes lease repayments lower during the term, enabling most people to opt for a more expensive car using the lower payment structure.

The residual value is a percentage set by the ATO, influenced by the lease term, with a buffer of around 5% on either side of the required rates.

Loan or Lease:

For many, financing is essential when purchasing a car.

Finance Approval Conditions:

After using our Novated Lease Calculator and ensuring the deduction is manageable for your salary, the next step is getting finance or lease approval. Generally, obtaining approval for a Novated Lease is slightly easier than traditional finance. This is because the financier receives repayments directly from your employer before taxation, enhancing their confidence in loan repayment.

For a pre-approval, click here. This approval provides an initial endorsement for your chosen vehicle. It's non-binding, and there's no pressure to use it. The approval strengthens your negotiation position when purchasing. Those prepared to buy with funds in place can request a cash price for immediate delivery.