Unsure ofwhat a novated lease is? Don’t worry - most Australians don’t.

A novated lease is just a way to pay for your car and its running costs using your pre-tax income, which in the eyes of the ATO reduces your total salary and therefore the amount of tax you pay.

You might have heard people say they’ve ‘salary sacrificed’ items with their employer, like a laptop, phone or another asset. A novated lease is basically a way to salary sacrifice your car (more on that in the next chapter).

If you’re looking to buy a car, the benefits of a novated lease are inviting:

• Save thousands off the cost of your dream car; while also
• Saving thousands on your annual tax bill; while also
• Saving thousands on your car’s running costs every year.

Have we caught your attention?

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How does novated leasing work?

The word ‘novate’ is just a fancy word for “assign lease obligations to another party”. In this case, that party is your employer.

Basically, an agreement is set up between you, your employer, and a car finance provider. Instead of paying for your car outright, you enter into a lease agreement for the car with the finance provider for a fixed period (usually between 1 - 5 years). Your employer then deducts the cost of your car from your salary before tax, thereby reducing the income tax you pay each pay cycle.

The best part? Your car payments are fixed, so you know exactly what you’re paying for your car each month. Plus, the higher your tax bracket, the more you save.

And the more you drive, the more you save on running costs too - all of which can be included in your lease and paid before tax, meaning they also contribute to your tax reduction!

• Fuel / Electricity
• Servicing
• Tyres
• Insurance
• Registration
• Roadside assistance

There are other benefits of a novated lease, too:

• Because you’re not technically purchasing the vehicle, you can save up to $6,334 in GST on the price of the vehicle.
• You don’t have to pay GST for fuel / electricity, servicing and labour.
• You get access to wholesale prices on most cars, meaning we can negotiate a cheaper upfront price on the vehicle than you could negotiate on your own in a dealership.

We know this all seems too good to be true. We get it. But we assure you, this is very real and an absolute no brainer.

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What happens at the end of the novated lease?

At the end of your novated lease, you’ll have a lump sum payment remaining called the ‘residual’. It’s usually lower than the market value of your car by the end of your lease, leaving you with a few options:

1. Sell the car to pay your residual. Any profit you make is yours to keep - tax-free! At which point you can either walk away without another vehicle, or you can get into a new car on a new novated lease.
2. Pay the residual and keep the car, which means you’ll own the car outright; or
3. Refinance the residual. Here, you enter into a new novated lease agreement where you finance the residual amount and keep the tax savings going.

Remember, speak to your financial professional at this point and they can advise you on what is best for your specific circumstances.

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How do I get a novated lease?

It’s all pretty easy (especially with Leaselab).

Your employer just needs to be set up for novated leasing (which is fairly simple – we have a section for employers and a handy employer guide with steps).

Then choose your car, speak to us and we set it all up for you guys. Done.

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Now you know what novated leasing is, what’s next?

If you’d like to get an idea of the potential savings you can get, try our novated lease calculator. Alternatively, if you’d prefer to chat with a human, why not give us a call on 1300 888 594 and we’ll happily walk you through specific options for you.