What Is a Novated Lease? A Beginner’s Guide

Thinking about getting a new car but don’t want the full financial burden upfront? A novated lease might be the smart solution you’re looking for. It’s a popular vehicle financing option in Australia, especially for employees who want convenience and tax benefits rolled into one.

In this beginner’s guide, we’ll break down how a novated lease works, what makes it different from other car finance options, and how to figure out if it’s right for you—no jargon, no fluff. And if you’re ready to explore your options, Fingo can help you every step of the way.

 

What Is a Novated Lease?

A novated lease is a three-way agreement between you (the employee), your employer, and a finance provider. It allows you to lease a car using your pre-tax income, potentially saving you thousands over the life of the lease.

Here’s how it works in simple terms:

• You choose the car you want.
  
• Your employer agrees to make the lease payments directly from your salary.
  
• The lease is set up in your name, but your employer handles the payments through salary packaging.
  

Because the payments come out of your pre-tax salary, it can reduce your taxable income, meaning you might pay less tax overall.

At Fingo, we make it easy to understand your leasing options and help you find the right package for your needs.

 

How Does a Novated Lease Work?

Let’s break it down step by step.

1. You choose a car

Pick a new or used car—whatever fits your lifestyle and budget. Some providers may allow you to lease a car you already own.

2. You set up the lease

A lease agreement is created between you and a finance company, usually for 2–5 years. Your employer also signs a Deed of Novation agreement, meaning they take on the responsibility of making the lease payments on your behalf.

3. Your employer deducts payments from your salary

Lease payments are split between your pre-tax and post-tax income. This is where the potential tax savings kick in. Because part of the payment comes out before tax, your taxable income is reduced, which could mean more money in your pocket.

4. Your lease covers more than just the car

Many novated leases are fully maintained, meaning they include:

• Fuel/Charging
  
• Registration
  
• Insurance
  
• Servicing
  
• Tyres
  

These are bundled into one monthly payment, making budgeting much easier.

 

Benefits of a Novated Lease

A novated lease comes with some solid perks—especially for full-time employees.

Tax savings

By using your pre-tax income, you reduce your reportable taxable income, which could mean:

• Lower income tax
  
• Better eligibility for certain tax thresholds or benefits
  

Plus, you may not need to pay GST on the purchase price of the car.

Easy budgeting

With one monthly payment that covers most vehicle expenses, it’s easier to manage your cash flow.

Flexible car choices

You’re not limited to company cars or specific models. Choose a new or used car that suits your lifestyle.

Drive a newer car more often

Leases usually last 2–5 years, so you can upgrade more frequently than if you owned the car outright.

With Fingo, you get transparent, personalised support to maximise these benefits while staying within budget.

 

Potential Drawbacks and Considerations

While novated leasing has its advantages, there are a few things to keep in mind:

Fringe Benefits Tax (FBT)

The ATO sees novated leases as a “fringe benefit,” so Fringe Benefits Tax (FBT) may apply. To reduce or eliminate this, many leases use the Employee Contribution Method (ECM)—where a portion of the lease payment comes from your post-tax salary.

If you change jobs

If you leave your job or your employer doesn’t support novated leasing, the lease becomes your responsibility. You’ll either need to:

• Take over the payments yourself, or
  
• Transfer the lease to a new employer (if they agree)
  

You don’t own the car (at first)

During the lease, the car technically belongs to the finance company. At the end, you can choose to:

• Pay the residual value and own the car
  
• Trade it in for a new lease
  
• Hand it back (depending on the agreement)

 

Who Is a Novated Lease Best For?

A novated lease isn’t for everyone—but if you’re a salaried employee and your employer allows it, it can be a great way to get behind the wheel of a new car.

It’s especially suitable for:

• Full-time workers with stable income
  
• People who want predictable monthly vehicle costs
  
• Drivers who like to upgrade every few years
  
• Anyone interested in potential tax savings
  

If that sounds like you, Fingo can help you compare options, understand the numbers, and handle the paperwork with your employer.

 

How to Get Started with a Novated Lease

Here’s how you can take the next step:

1. Use a Novated Lease Calculator

Estimate your potential savings based on your income, vehicle price, and lease term. A novated lease calculator can give you a quick snapshot of how much you might save in tax and running costs.

2. Talk to your employer or HR team

Not all companies offer novated leasing, so check first if it’s supported.

3. Choose your car

Decide on the make and model that fits your lifestyle and budget.

4. Partner with a novated lease provider

They’ll arrange the paperwork, coordinate with your employer, and guide you through the salary packaging process.

Fingo makes it simple to compare novated lease options and calculate your savings—all in one place.