How a novated lease works.
A novated lease is a three way agreement between you, your employer and a financier. Your employer pays the lease from your salary, partly before tax, and running costs can be bundled in.
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What is a novated lease?
A novated lease is a three way agreement between you, your employer and a financier. Your employer takes on the lease payments while you work there and deducts them from your pay, partly before tax and partly after tax. Running costs can be bundled into the same deductions.
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How a novated lease works, step by step.
Six plain steps from choosing the car to the end of the lease.
- STEP 1
Your employer offers salary packaging
A novated lease needs your employer to agree. Check that they offer car salary packaging and which provider they use.
- STEP 2
You choose the car
Pick a new or used car. A financier leases it to you, and the lease provider arranges the quote and the paperwork.
- STEP 3
You, your employer and the financier sign
The novation agreement makes it a three way arrangement. While you work there, your employer takes on the lease payments.
- STEP 4
Payments come out of your pay
Part of the cost is deducted before tax. Part is usually deducted after tax to reduce the fringe benefits tax on the car.
- STEP 5
Running costs can be bundled
If your package includes them, fuel, servicing, tyres, registration and insurance are budgeted into the same deductions.
- STEP 6
A residual is due at the end
When the lease ends, a residual value is owed. Common options are to pay it out, refinance it or sell the car.
Want a rough number first?
Try the novated lease calculatorWhy people choose a novated lease.
Whether it works out cheaper depends on your income, the car and the fees, so compare it with a car loan.
Part paid before tax
Some of the lease and running costs come out of your salary before tax is worked out
One regular deduction
Car payments and running costs can sit in one budgeted deduction from your pay
New or used
Choose a new or used car, within your employer's and provider's rules
EV FBT exemption
Eligible battery electric and hydrogen fuel cell cars can be exempt from FBT, including under salary packaging
What a novated lease plan can include.
A fully maintained lease budgets the running costs into the same deductions.
Vehicle payments
The lease payments for your chosen car
Fuel or charging
Your fuel or charging costs, if your package includes them
Servicing
Scheduled servicing and maintenance, if included
Insurance
Car insurance can be included in a fully maintained lease
Registration, tyres and roadside assistance can also be included, depending on your package.
Novated lease FAQs.
Common questions about novated leasing and salary packaging.
What is a novated lease?
A novated lease is a three way agreement between you, your employer and a financier. Your employer takes on the lease payments while you work there and deducts them from your pay, partly before tax and partly after tax.
How does a novated lease work?
You choose a car, a financier leases it to you, and you, your employer and the financier sign a novation agreement. Your employer then makes the lease payments and any bundled running costs from your pay. Part is deducted before tax and part is usually deducted after tax to reduce fringe benefits tax. At the end of the lease a residual value is due.
What is a novated lease plan?
A novated lease plan, or package, is the budget your lease provider sets up for the car. It covers the lease payments and the running costs you choose to include, such as fuel, servicing, tyres, registration and insurance, spread across your pay cycle.
Do electric cars get an FBT exemption on a novated lease?
Eligible battery electric and hydrogen fuel cell cars can be exempt from FBT, including when provided through salary packaging. The car must be first held and used on or after 1 July 2022, and its value must be below the luxury car tax threshold for fuel efficient vehicles. Plug in hybrids generally stopped qualifying from 1 April 2025, unless already exempt under an existing binding commitment. The exempt benefit still counts toward your reportable fringe benefits amount.
Can I claim my car running costs on tax with a novated lease?
Usually not. Under a novated lease your employer typically pays the running costs and claims the deductions, so you generally cannot claim them again yourself. Work related parking and tolls may be different, so check with the ATO or your tax agent.
Does a novated lease involve a credit check?
Generally, yes. The financier assesses the lease application, which usually includes a credit check and a look at your income and expenses. Approval depends on the financier's assessment.
What happens if I change jobs?
The novation agreement is tied to your employer, so it ends when you leave. Your lease provider will explain the options, which can include moving the lease to a new employer that offers salary packaging, continuing the payments yourself without the tax treatment, or paying out the lease.
What if my employer does not offer novated leasing?
A novated lease needs your employer to agree to the arrangement. If they do not offer it, a standard car loan is the usual alternative, and we can compare eligible car loans from our panel for you.
Can I get a novated lease on a used car?
Often, yes. Many providers lease both new and used cars, although they usually set limits on the car's age at the end of the lease.
General information only, based on ATO guidance. Your tax outcome depends on your circumstances, so check with the ATO or a registered tax agent.
Novated lease providers.
Employers usually appoint a salary packaging or novated lease provider. Names you may come across include:
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