Novated leases are widely advertised as a convenient way to finance a vehicle through salary packaging, often with the promise of tax savings. In the right circumstances, they can be a practical option, but they are not a one-size-fits-all solution.
What is a novated lease?
A novated lease is a vehicle finance arrangement linked to your employment.
Payments are made via your payroll, and running costs (such as fuel, servicing, insurance, and registration) can be packaged into one regular amount.
Depending on the structure, part of the cost may be paid from pre-tax income, which is where the potential tax benefit may come from.
Why do people choose them
Many people like novated leases because they simplify budgeting — one regular payment can cover most vehicle costs, and expenses are spread out rather than arriving as large one-off bills. For higher-income earners who expect to remain with their employer and prefer changing cars every few years, this structure can be convenient.
A quick note on “tax savings”
The tax benefit can be real, but it depends on your personal situation. Many examples and calculators assume higher income brackets, certain kilometres, and specific running-cost assumptions. If those assumptions don’t match your circumstances, the savings may be less than expected. It’s important to review the total cost, not just the headline tax message.
What to check before deciding
Total cost
Novated lease payments can include finance costs, administration/management fees, and bundled running costs. The monthly figure can look attractive, but it’s the total cost over the full term that matters.
What’s inside the “bundle”
Bundled costs are convenient, but the assumptions (kilometres, maintenance, and insurance pricing) can vary. Some packages are great value, others are simply convenient.
What happens if your job changes
Because novated leases run through your employer, it’s important to understand what happens if you change roles, change employers, or move to an employer that doesn’t support salary packaging.
When a Novated Lease Can Be a Great Fit
- Higher income (where the tax impact is more meaningful)
- Stable employment
- A preference for newer cars every few years
- A strong preference for convenience and predictable costs
How to Decide
Compare a novated lease with a standard car loan (where you choose your own insurance and servicing). With our Tax Team’s help, we’ll run a side-by-side, after-tax comparison and recommend the option that best fits your situation, in the most tax-effective way. Contact us to get started.
