Novated lease is an agreement between an employee, an employer and a financier. Where a lease is taken out in the employee’s name, and the
employer agrees to take on the repayment obligations for the term of the employee’s employment. The contract is not recorded on the employer’s
If the employee leaves this business, the lease may be transferrable to a new employer, or the employee may be responsible for the repayments without
help. The original employer then bears no financial obligation and will not be stuck with a car they no longer require.
What’s the benefit of a Novated Lease contract? The employee can benefit from a tax reduction due to the repayments being made with pre-tax dollars. As a result of the transaction between the employee and the company, there could be fringe benefits tax consequences, based on the car valuation and kilometres travelled. Therefore, collaboration with a mortgage broker and tax advisor is advised, as similar to a finance lease, residual risk rests with the employee.