what is novated leasing

What is a Novated Lease? (And what happens if the staff member leaves?)

A novated lease is a type of car lease arrangement in which an individual (the “lessee”) transfers their lease obligation to their employer. The employer then becomes responsible for making the lease payments on behalf of the employee and assumes ownership of the vehicle. The purpose of a novated lease is to allow the employee to receive the benefits of a company car while maintaining the tax benefits that come with a lease agreement.

Under a novated lease, the employee’s salary is reduced to reflect the cost of the lease payments, and the employer takes over responsibility for the lease payments. This can provide significant tax savings for the employee, as the lease payments are paid from pre-tax salary, and the cost of running the vehicle can be claimed as a tax deduction for the employer. In addition, the employee can receive a fully maintained vehicle with all running costs, such as fuel and insurance, included in the lease payments.

It’s important to note that novated leases are only available to employees and are typically only offered by larger companies or organizations. Additionally, the employee must have the approval of their employer to enter into a novated lease, and the employer must agree to assume the obligations of the lease. It’s also important to carefully consider the terms of the lease and to seek professional advice before entering into a novated lease agreement.

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