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Your Guide to Novated Leasing

What is a Novated Lease?

A Novated Lease is an agreement between you, your Employer and the Financier.

A Novated Lease is a tax effective option that is approved by the Australian Tax Office (ATO). The main benefit in doing a Novated Lease is to reduce the cost of financing and running a vehicle. This is done through the tax and GST savings when Novating a vehicle.

Novated Leasing is associated with Salary Packaging which incorporates other benefits other than a vehicle. Salary Packaging and Novated Leasing enable you to pay for the vehicle and associated running costs out of your pre-tax salary rather than after-tax. This means more money in your pocket.

Benefits for Employees

A Novated Lease allows your employer to deduct a portion of the entire vehicle expenses out of an employee’s Pre-Tax income. Paying for a vehicle this way results in reducing your taxable income and consequently reduces the amount of tax that you pay. Substantial savings can be achieved over acquiring and operating a vehicle from before tax income. The savings on tax means that a Novated Lease can be the cheapest and smartest way to own and operate a vehicle. In some cases, it can be cheaper than paying cash for the car.

Flexibility of Choice

The vehicle can be new, used or even a luxury vehicle (used vehicles can be no more than 12 years old at the end of the Lease Term). You also have the choice to add any additional extras to the vehicle such as Window Tinting, Tow Bars, Paint Protection etc. You decide the term of your Novated Lease. You can choose anywhere between one and five years.

No Business Use Required

A Novated Lease can be used for total private use. You can even Novate a motor vehicle for your spouse or a family member.

GST Benefits

When buying a vehicle through a Novated Lease the GST is not included in the finance and running costs. This provides a 10% saving for all expenses associated with the vehicle, in addition to the income tax savings. The financed amount is the GST exclusive amount of the vehicle i.e. buying a vehicle for $33,000 (GST Inc.) would see the $3,000 of GST come off the price of the vehicle. With a Novated Lease the GST benefit of operating the vehicle is claimed by the Employer and then passed on to you.

Buying Power

Most leasing providers will be able to procure the vehicle for you with substantial fleet discounts included. Note that there is generally a procurement fee charged for this service.


You will be provided with a Fleet Card which enables payment for your fuel, servicing, tyres, batteries and even windscreens at selected outlets. This allows convenience to pay for these expenses direct from your leasing account rather than out of your own pocket.

What’s Included in your lease?

With a fully managed lease, your vehicle running costs are bundled in to one easy payment. The following items are included;

✔️ Finance

✔️ Fuel

✔️ Servicing & Maintenance

✔️ Comprehensive Insurance (arranged by either yourself of the provider).

✔️ Registration

Please note that your running costs are based on the annual kilometres you have nominated.If you find that you are driving far more or far less, you always have the option to amend your budget.

Benefits for Employers

One of the most critical challenges facing business owners today is the ability to attract and retain valued employees across all levels. Salary Packaging delivers substantial tax savings to an employee at no cost to the employer. By adopting a Salary Packaging strategy, you become an Employer of choice. By offering Novated Leasing you keep up to date with current remuneration strategies while transferring the risks of owning and operating a motor vehicle to the employee.

No Risk Of Ownership

With a Novated Lease Agreement, the vehicle is retained by the employee should they leave their employment. The employer is not left holding a surplus or redundant vehicle.

No Balance Sheet Liability

As the employee assumes the risk and ownership of the Lease, the employer does not assume the requirement of Balance Sheet reporting.

Loan Terms and Residual

On a Novated Lease, you will have a residual amount payable at the end of the lease term.

The values are set by the ATO and are a percentage of the amount financed;

📌 1 year term – 65.63%

📌 2 year term – 56.25%

📌 3 year term – 46.88%

📌 4 year term – 37.50%

📌 5 year term – 28.13%

Once your lease term has ended, you have a few options available to you with regards to the payment of your residual. Options include;

📌 Pay the balloon/residual in full

📌 Sell/Trade the asset and finance again on a new asset

📌 Refinance the balloon/residual for a further term.

Add-On Insurance

This is always an interesting topic… Rule number 1 – ALWAYS check your Novated Lease quotation to see if any extra insurance policies have been added in, especially if you didn’t ask for them or they weren’t mentioned by the consultant.

Policies include, but are not limited to;

- GAP Insurance

- Tyre and Wheel Insurance

- Lease Protection Insurance

- Small Damage Insurance

Having unnecessary insurance policies added on to your lease can end up costing you thousands. It is in your best interest to do your research prior to agreeing to any add-on insurance policy.

Of course, the choice is entirely up to you whether you decide to take out any of these policies, but please make an informed and educated decision.


The interest rate across the industry can vary greatly. Some might charge 5%, others may charge 10%. It is recommended to obtain multiple quotations.

Keep in mind that a Novated Lease is a commercial product so you should be offered the average rate in the industry. There is absolutely no reason for the rate to be sky high.

Financial Advice

Depending on your Employer, Financial Advice may be mandatory. We would suggest obtaining advice especially if you are not clear on exactly how a lease works and how it will impact you and your financial situation. Most financial advisers are extremely knowledgeable with Salary Packaging. We are partnered with many advisers, so we are more than happy to get you in touch with the right person.


How do I start the process of Salary Packaging a Motor Vehicle?

Firstly, and most importantly, you must consult with your Employer to agree to implement Salary Packaging if a Salary Packaging policy is not already in place, as your Employer will take responsibility for the finance lease and associated operating expenses by means of a Novation Agreement. The process cannot proceed without your Employers authority.

Can I use any financier?

This will depend on who you work for and if there is a panel in place for preferred Novated Lease providers. Contact your HR or the leasing provider and ask the question.

Are there any restrictions on the vehicle I intend to Lease?

The vehicle can be New, Used or a Demonstrator vehicle purchased from a licenced motor dealer and is no older than 12 years old at the end of the Lease term. Motorcycles are excluded from a Novated Lease due to not being classified as a ‘car’ for FBT purposes.

How do I pay for the vehicle expenses?

You will be sent a Fuel/Fleet Card by your leasing provider. In most cases the card can be used to pay for Fuel, Servicing, Tyres and Maintenance. In the event that the card is strictly for Fuel, all of your running costs can be paid for by submitting a claim to the provider.

What happens if I leave my Employer during the Lease term?

Should you leave your Employer, your Employers Novation Agreement with the financier concludes. A full reconciliation of the running costs, up to the Lease end date, will be carried out. Any surplus or shortfall will be settled in your pay by your Employer.

The following options then apply;

📌 Subject to your new Employers agreement, arrange a new Novation Agreement with them, or

📌 Continue to pay your monthly lease rentals under your Finance Lease Agreement (vehicle running costs will not be included in the payment, or

📌 Payout the Lease and own the vehicle outright.

What happens at the end of the Lease?

Your leasing provider will make contact with you approximately 6 months out from when your lease is due to expire with the options available to you. Your options will include;

Extending the Lease for a further term, Paying out the Residual Amount and terminating the Lease, or Replacing the Vehicle and enter in to a new Lease arrangement.

Important Note: At BNE Capital, we do not manage Novated Leases. We can always arrange the finance for you and have your lease set up with your preferred provider. If no provider is in place we have partnered with a reputable leasing company who will take care of the leasing management for you.

With years of experience in the Novated Leasing sector we know a thing or two about how it works! Whether you are an Employee or an Employer seeking advice on the product, we can certainly assist.


Phone 0421 249 594 or 07 3711 4970


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