A novated lease is a form of salary sacrificing that allows an employee to finance a car with fortnightly or monthly payment instalments. Employers will pay off this new or used car by accessing a portion of the employee’s pay pre-tax for the chosen period of the novated lease (five years, for example). The salary sacrificing company that facilitates this novated lease will also extend a fuel and servicing card with funds loaded to keep your tank full and your car serviced and on the roads.

Not all workplaces have access to novated leasing and other salary sacrificing benefits, and they are typically seen in government organisations, non-government organisations and the health sector. If an employer chooses to offer this to their employees they can partner with a salary sacrificer and the payroll department will work in partnership with that provider to pay down the lease of a car with an employees wage, pre-tax.

Is a novated lease worth it?

Employers and their employees may believe that a novated lease sounds like a more complex car loan, but how car lease payments are calculated are far more advantageous than going through a bank. When your payroll processes your wage, the car repayments are made pre-tax and your remaining wage will be deposited to your allocated account, automating the commitment and saving you on income tax and tax associated with running your car. Your fuel, servicing and registration are also paid with tax-free funds, as well as car insurance, roadside assistance and other car enhancement if you choose to include that benefit.

How car leases work if employees leave

If an employee purchases a new car through a novated lease and commits to a five-year lease term and leaves after two years, they are obligated to either take on the ‘balloon payment’ that remains on the lease or they can walk away from the car which will return to a dealership with ownership transferred from the employee. This means that the employee will only be paying for the car as they use it, and can choose to pay the remaining 3-year lease amount outright, or not. An employee may negotiate with a new employer to carry the novated lease over, especially if they use the same salary sacrificing provider, but this decision is at the discretion of the new employer.

Greater flexibility in what car lease I can afford

Unlike other financial options available, novated leasing gives the employee flexibility over what car they choose, with the option of a new, second hand or used car through various platforms. Other financial institutions or car dealership financing can often insist on a value threshold being met, which can result in a car purchase that may be beyond the means of the employee. Novated leasing can cover a used car for as little $5,000 right through to a family-friendly vehicle bought brand new – secured through a tax-deductible solution.

Novated leasing process and procedure

Novated leasing is an option to any employee who has salary sacrificing entitlements, and most salary sacrificing providers have an accurate calculator function that will inform you of your fortnightly or monthly payments based on a lease value of any amount. The employee can then approach a dealership or car owner and ask for a contract of sale which will be submitted to your salary sacrificing representative, confirmed by your employer (that you are who you say you are and still an employee) who will then finance the car by liaising directly with the seller. The employee then can pick up the car and receive the fuel and servicing card in the mail soon after.

Are car lease payments tax-deductible, and what about the employer?

Yes, novated leasing is a great way to take advantage of significant tax savings when purchasing a new or used car. According to Sun Super;

As an example, someone earning $80,000 a year who packages a $40,000 car would save about $3,200 a year over four years. This includes savings on income tax and the associated running costs of the car. They could save an additional $2,000 – $3,000 on the cost of the car.

From the point of view of the employer, novated leasing offers a tax-efficient way to honour and reward their staff, essentially extending their salary when they take advantage of these tax benefits. If employers are rigid in their salary capping and cannot negotiate with new talent, then novated leasing and salary sacrificing, in general, represents a great perk to anyone looking to reduce tax bills.


Novated leasing is an attractive alternative to taking out a car loan with a bank or extending credit to acquire a new or used car. In fact, the significant savings on income tax and running costs of the cars make novated leasing the most responsible way to buy a car outside of paying it off directly with funds. If you would like to explore your novated leasing options or how this impacts your wages and payroll commitments, contact i3Group today to learn more.

Interested in learning more about salary sacrificing? Check out our master guide here!