An Employer’s Guide to Getting an Employee Car through Novated Leasing

Getting a car for your business provides lots of benefits for you and your employees.

Today, getting a car has never been easier thanks to the rise of several different financing options – with novated leasing being one of those great solutions.

Use this guide so you won’t get caught up in the jargon of novated leasing and learn how it can benefit your business and employees.

What is a Novated Lease?

A novated lease is an agreement between you, your employee, and a leasing company. As the business owner, you accept full responsibility for making the monthly payments whilst the employee is working for you. It is a salary packaging option, wherein you deduct the money from your employee’s salary to pay for such costs. Your employee can enjoy tax savings because their taxable income will significantly be lowered.

How It Works

The usual novated lease agreement can last for up to five years. After that, your employee has the option to trade the car for a newer model, start a new lease, or perhaps pay a pre-determined buy-out fee to keep the car.

As opposed to a regular car loan that is paid using a post-tax salary, a novated car lease can be paid before tax. Thus, your employees can save money through a lowered taxable income.

The vehicle is leased by the employee with the option to own at the end.

You can take advantage of an online novated lease calculator (offered by reputable novated leasing companies) to determine how much the monthly payments will be and how much money your employee can save. All you have to do is to input the salary of the employee who wants to get a car, the desired vehicle, and the lease term.

This can help you and your employee make a well-informed car buying decision.

Benefits of Novated Leasing

For the Employer

Novated leasing is a great way to give incentives to your employees. They can have access to affordable car leasing through your company without you bearing the burden of managing a business car fleet.

Also, when your employees leave before the lease ends, you won’t be responsible for the car. In other words, you assume no financial risk. Novated leases aren’t regarded as either your business asset or liability.

For the Employee

A novated lease is subject to FBT or fringe benefit tax. This is calculated at 20% of the total cost of the vehicle multiplied by the maximum tax rate. But even with the presence of FBT, your employee can still enjoy significant savings through a lower tax rate.

Also, your employee does not have to worry about budgeting for monthly repayments because this is automatically deducted from their salary. With regards to vehicle options, both new and used vehicles can be obtained through this leasing option. Moreover, there are actually no restrictions in terms of usage because this can be used for personal or business use.

If your employee leaves the company, the lease agreement ends immediately. However, there are other options available to them, such as paying out the remaining amount of the lease and keeping or selling the car, or transferring the novated lease to a new employer (if they offer it).

A novated lease is an employee benefit that can help attract and retain staff  who will contribute to the success of your business.


Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.



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