If you’ve heard the term “novated lease” and switched off because it sounds complicated — you’re not alone.
Most people assume it’s some kind of corporate finance product reserved for executives with company cars. In reality, a novated lease is one of the most practical and tax-effective ways for any salaried Australian employee to get behind the wheel of a new car — and the savings can be significant.
This guide breaks it all down in plain English. By the end, you’ll know exactly how a novated lease works, what it costs, what you save, and whether it makes sense for your situation.
How a Novated Lease Actually Works
A novated lease is a three-way agreement between three parties: you (the employee), your employer, and a finance provider (like Nationwide Finance).
Here’s the simple version of how it works:
- You choose the car you want
- Your employer agrees to make lease payments on your behalf
- Those payments come out of your pre-tax salary
- All your car running costs — fuel, insurance, registration, servicing — are bundled into one regular payment
- At the end of the lease term, you can buy the car, extend the lease, or upgrade to a new one
The key word here is pre-tax. Because the payments come out of your salary before tax is calculated, you effectively reduce your taxable income — which means you pay less income tax each fortnight.
What Does “Novated” Actually Mean?
The word “novated” simply means the obligation has been transferred. In this case, the lease obligation is transferred from you to your employer — which is why your employer needs to be part of the agreement.
Don’t worry, your employer isn’t paying for your car. They’re simply acting as the conduit for the salary packaging arrangement. If you leave the company, the lease either transfers to your new employer or reverts to a standard personal loan in your name.
The Real Financial Benefits of a Novated Lease
Here’s where it gets interesting. A novated lease isn’t just a finance product — it’s a tax strategy.
1. You Pay Less Income Tax
Because your lease repayments come from pre-tax income, your taxable income drops. This can save you thousands per year in income tax.
Example: If you earn $90,000 per year and your novated lease payments are $10,000 per year, your taxable income drops to $80,000. At 32.5%, that’s a saving of approximately $3,250 per year.
2. You Don’t Pay GST on the Car
The finance provider claims the GST on the vehicle price — meaning you get a 10% discount from day one. On a $50,000 vehicle, that’s $4,545 in GST savings.
3. Running Costs Are Bundled Pre-Tax
Fuel, tyres, servicing, insurance and registration are all paid from pre-tax dollars — so you’re saving tax on every tank of fuel and every service, not just the car payments.
4. Electric Vehicles Are Even Better
Eligible EVs and plug-in hybrids can be leased with zero FBT under the Australian Government’s FBT exemption introduced in 2022. A novated lease is arguably the most cost-effective way to finance an EV in Australia right now.
What Are the Costs and Risks?
A novated lease isn’t for everyone. Here’s what to consider.
Fringe Benefits Tax (FBT)
Unless you’re driving an eligible EV, your employer will be liable for FBT on the lease. This cost is typically passed back to you and factored into your payments.
Residual Value (Balloon Payment)
At the end of the term there’s a lump sum residual value. You can pay it out, refinance into a new lease, or trade the car in.
If You Change Jobs
The lease either transfers to your new employer or becomes a standard car loan in your name. Worth considering if you’re in a high-mobility industry.
Not All Employers Participate
Confirm with your HR or payroll team that novated leasing is available before you start shopping for a car.
Is a Novated Lease Right for You?
It tends to make the most sense when:
- You’re a salaried employee in a tax bracket of 32.5% or higher
- You want a new or near-new car with one simple payment
- You’re considering an EV or plug-in hybrid
It makes less sense if you drive very low kilometres, your employer doesn’t offer salary packaging, or you’re close to retirement.
How to Get Started
Getting a novated lease through Nationwide Finance is straightforward:
- Tell us the car you want — new, used, EV, or hybrid
- We calculate your savings and show you exactly what you’ll pay
- We handle the paperwork with your employer and the finance provider
- You drive away with one simple pre-tax payment covering everything
Most clients are approved within 5–10 business days.
Ready to Find Out What You Could Save?
Our team at Nationwide Finance can walk you through a personalised novated lease quote at no cost and with no obligation.
Get your free novated lease quote today or speak with one of our brokers directly.
Nationwide Finance is a Melbourne-based finance broker with over 25 years of experience helping Australians access competitive vehicle and business finance. We work across 30+ lenders to find the right structure for your situation.