A novated lease is an agreement between you, your employer and a leasing company (like us at Leaselab!) that allows you to pay for a car and its running costs out of your pre-tax income.

Because of this, you can save thousands of dollars in income tax and GST each year, simply by novating your car.

Check out our complete Guide to Novated Leasing for more information.

A novated lease provides a long list of benefits, but here are a few noteworthy ones:

• Saving up to $6,000 in GST from the price of the vehicle
• Saving on GST for all of the vehicle’s running costs, including fuel, servicing, registration and insurance
• Reducing your tax bill by paying for the cost of the vehicle and its running costs using your pre-tax income

Also, as everything is pre-budgeted, you’ll have a smoother outlay of costs and avoid bill shock. So you can easily manage your monthly cash flow.

A novated lease comes out of your pre-tax salary - something you can’t do with a standard car loan or when purchasing the car outright.

So essentially, you pay for your car and all of its running costs before you pay tax. This reduces your total annual income, and thereby allows you to save thousands in tax every single year.

It’s a no brainer game changer to really think about when weighing novated leases against other ways to get your next car.

New cars, used cars and even currently owned vehicles are eligible as novated lease vehicles. There are some minor rules from the ATO to be aware of:

• The car can’t have a carrying capacity of more than one tonne (although this can be offset by accessories when it comes to vehicles like utes)
  
• The car can’t be designed principally to carry a large number of passengers (i.e. it can’t be a minibus). Anything with a carrying capacity of less than eight seats is fine.
  
• Generally, financiers don’t like to finance cars that are older than 12 years at the end of the lease (so for a 3-year lease, the car can be a maximum of nine years old). There are exceptions for classic cars.

You most certainly can! If you want to lease a used car, the process is the same as a new car – we just skip needing to order your car, because you’ve already found an existing car you want.

There are some restrictions on the car you can buy, so we suggest reading our article about novating a used car for more information.

No, they’re very different!

A car loan comes out of your post-tax salary, so you pay for the loan after you’ve paid tax on your earnings. That means there’s no financial benefits when you purchase a vehicle using a car loan.

Whereas a novated lease and the vehicle’s running costs come out of your pre-tax salary, which can significantly reduce your tax bill.

So while a novated lease will save you thousands of dollars every year, a car loan is just an additional cost with no associated savings.

You can cancel your novated lease at any time.

You just have to pay the remaining lease payments and the residual value. If your lease has been running for a while, chances are that the value of your car will be higher than the amount owing, so you will be able to sell the car and pay off the lease.

If you want to end the lease in its early stages, the car may well be worth less than the outstanding amount, so you will have to put some of your own money in.

For a new car on a novated lease, we’ll:

1. Give you a quote: It’s obligation-free and includes a 10-15 minute chat over the phone to explain how it all works.
2. Get your finance pre-approved: You complete a finance pre-approval application, and we get you green-lit for finance while you choose a car.
3. Reserve your car: You tell us which car you want, and we’ll secure your vehicle. More often than not, we can get you fleet pricing through our networks (which is handy if you really want any upgrades, like leather seats).
4. Send you some paperwork: You and your employer complete some paperwork while we organise the final payment for your vehicle. Then we’ll notify your employer to begin your lease deductions out of your monthly salary.
5. Welcome you aboard: We’ll give you your welcome kit with details on how to look after your car (and your fuel card, if you’ve chosen to include fuel).

This is the condense version, but you can read about the process in more detail here: ‘Steps to getting a novated lease car’.