Novated leasing

Drive the latest models without buying and reap the tax rewards when taking out a novated lease through Savvy.

Novated Leasing

Buying a car? Novated leasing might save you even more long-term.

What is novated leasing?

Novated leasing is a three-way agreement between your employer, a financier, and you as an employee to purchase a car through a lease agreement. It is arranged as part of a salary package. The employee sacrifices part of their pre-taxable income to go toward the cost of the lease. The car’s GST purchase price and depreciation are claimed by the employer which reduces the amount an employee must sacrifice. Running costs are also claimed which reduces the amount of fringe benefits tax.

Novated leasing tax advantages

Novated leasing is an ATO-approved way of reducing tax for both employers and employees. An employee can reduce their pre-tax income with a novated lease which reduced their overall tax payable. The car becomes a fringe benefit but is paid for by the employee using their pre-tax dollars or salary. The employee can also claim running costs such as fuel, insurance, and servicing as part of the agreement, most of these costs will be used with pre-tax dollars further reducing costs further.

The features and benefits of a novated lease

Highly competitive interest rates

You can find and compare leasing deals with rates starting at just 2.99% p.a. (3.36% p.a. comparison) and enjoy affordable fees throughout your term.

Salary sacrificing payments

Don’t worry about going out of your way to make repayments: your employer uses salary packaging to pay for the car lease, reducing the tax you’ll need to pay overall.

Claimable expenses

You’re able to claim many key running costs on tax, such as petrol, insurance premiums, repairs and roadside assistance under a novated lease.

Use it however you like

Unlike other commercial car finance products, you’re able to make use of the car for private purposes, such as shopping and taking your kids to school.

No GST payable

Because your employer is buying the car, they’ll claim for GST as well as depreciation, meaning you won’t have to pay for these at all.

You choose the maintenance

You can decide whether to have your lease fully maintained with all costs taken care of by your provider or arrange them yourself with a self-managed lease.

Select your leasing term length

As part of your leasing agreement, you’re able to choose the term over which you continue to use the car between one and five years.

Lease new or used

Whether you want to drive the newest models or select a car up to ten years old (or 15 at the end of the lease), we can help you arrange financing.

Novated leasing with savvy made easy

How to arrange a novated lease?

Figure out if you are eligible to take out a novated lease based on these steps

Learn more about tax, residuals and novated leasing

How big is a residual value payment?

Though it’s been mentioned throughout the novated lease literature, the residual value or “balloon” payment need not be a big lump sum like mainstream car loans. The ATO mandates that all novated leases must have some form of residual value payment. This amount is determined by current tax rules, the loan term, and the amount you finance. This is either expressed as a percentage or dollar amount, which is given to you as part of the novated lease agreement. Residual values reflect the car’s market value at the end of the lease, not it’s written-down value.

Term of Lease Effective Life
Year 1
65.63%
Year 2
56.25%
Year 3
46.88%
Year 4
37.5%
Year 5
28.13%

What is a split novated lease?

A split full novation arrangement (as described by the ATO) is a novated lease in which an employee is obligated to guaranteeing the residual value at the end of the lease. A full novation arrangement means the employer guarantees all payments and the residual value payment.

What is fringe benefits tax? How does it work?

Fringe Benefits Tax or FBT is a tax on non-salary benefits you obtain from your employer. This extends to company cars, private health insurance, accommodation allowances, and meals & entertainment. Fringe benefits are taxed at the maximum rate of 45% + 2% Medicare levy.

A vehicle’s taxable portion is either calculated by the Statutory Formula, a flat 20% rate minus state charges; or by operating costs if the vehicle is used for business more often than private use by a substantial margin.

If an employer must pay the FBT, the employee can reduce the FBT to zero by making post-tax contributions (i.e., paying for out of pocket) to running costs. This can include fuel, registration, insurance, servicing, and tyres. This is called the Employee Contribution Method (ECM.) Each dollar paid from an employee’s after-tax salary reduces the FBT by the same amount.

This is given as an example. Ask your accountant or company financial controller for a more detailed breakdown of FBT obligations and offsets.

Cost of Car $50,000
Statutory Formula
20%
Taxable Portion
$10,000
FBT Applied
$4,700
ECM over a Year
$4,700
Effective EBT
$0

Frequently asked questions about novated leases

Can any business provide novated leasing to their employees?

No – not all businesses will be able to offer a novated leasing arrangement to you. Before beginning your enquiry with Savvy, you should always check with your employer as to whether they’re willing and able to enter into such an agreement.

What types of cars am I able to use with a novated lease?

When it comes to novated leasing, you’re limited to passenger vehicles in terms of the types of cars that you can drive. However, models such as utes and dual cabs are still available for lease provided that their maximum payloads don’t exceed 1,000kg.

What happens if I leave my company during the lease term?

If you leave your company, either voluntarily or otherwise, you can switch your lease to your new company provided it offers salary packaging. However, if they don’t, your lease will revert to a standard consumer car loan and you’ll be required to complete the remainder of its payments out of pocket. This means that you’ll no longer gain any of the tax benefits present on standard novated leases, as well as your maintenance package if you opted for one.

How does Fringe Benefits Tax work and why does it affect me?

Fringe Benefits Tax, or FBT, is a tax on non-salary benefits you obtain from your employer. This extends to company cars, private health insurance, accommodation allowances and meals & entertainment. Fringe benefits are taxed at the maximum rate of 45% plus the 2% Medicare levy.

The calculation for a novated lease vehicle’s taxable portion is either the Statutory Formula (a flat 20% rate minus state charges) or by operating costs if the vehicle is used for business more often than private use by a substantial margin.

You can reduce the FBT to zero by making post-tax contributions (i.e., paying out of pocket) to running costs. This is called the Employee Contribution Method (ECM) and can include fuel, registration, insurance, servicing and tyres.

What is a split novated lease?

Yes – your car will need to be a passenger vehicle (not a ute or a van) and its maximum payload must not exceed 1,000 kg. You may also not select a vehicle that will be older than 15 years by the end of the term. For example, you cannot lease an 11 year old car over five years, but a 9 year old car would be acceptable.

Do I earn enough for a novated lease?

In most cases people on a steady salary can get a novated lease and purchase a vehicle that they normally wouldn’t qualify for with post-tax income. This varies from situation to situation.

Do I need to pay for my own insurance?

No. As car ownership rests with your employer, they will be responsible for insurance, registration, and other on-road costs. In some cases, you may have to pay for these costs and have them reimbursed.

What happens if I leave the company?

You will need to take over the lease and pay out of your own pocket. Talk to your broker or financier to discuss arrangements, as they can vary from lease to lease.