Novated leasing, explained

A three-way arrangement between you, your employer and a lease provider. You choose the car, the provider leases it, and your employer agrees to make the payments out of your salary. Most of that payment comes out before tax, which is where the benefit comes from. If you leave the job, the lease goes with you and the obligation returns to you.

Part of your salary goes to the car before income tax is calculated, so your taxable income falls and you pay less tax. The size of the benefit depends on your marginal rate: someone in the 45% bracket saves more per dollar packaged than someone in a lower one. There is usually a GST saving on the purchase and on running costs as well, because the provider claims the credit.

Yes. A novated lease cannot exist without your employer signing the deed. Many larger employers already offer it through a salary packaging provider. Smaller employers often can, but are not obliged to, and some decline because of the administration.

The novation ends and the lease reverts to you. You can ask a new employer to take it on, keep paying it yourself from after-tax income, or in some cases pay it out. This is the part people most often overlook when they sign, because it turns a pre-tax arrangement into an after-tax one overnight.

Not on business income alone. A novated lease needs an employer paying you a salary through the payroll. If you run a company and pay yourself a wage, the company can act as the employer, which is a common arrangement. A sole trader with no employment relationship cannot novate.

Generally yes, if you are genuinely an employee of the company and take a PAYG salary from it. A novated lease needs an employer to make the payments out of your salary, and your own company can be that employer. Owning the company does not disqualify you. What can stop it working is the personal services income rules, which limit what the company can deduct, and the provider's own assessment of a small or newly incorporated employer.

Yes. The arrangement works by deducting the lease payment from salary, so there has to be salary. A company that pays its owner only in dividends has nothing to sacrifice from and no employment relationship to hang the benefit on. The salary should be genuine, run through the payroll and reported through Single Touch Payroll, not a figure written up at year end.

Not the tax outcome. Income tax, FBT and the luxury car tax threshold are all federal and identical everywhere in Australia. What does change by state is registration, stamp duty and CTP, which affect the cost of getting the car on the road rather than the tax treatment of the lease.

No. A novated lease is an agreement between you, your employer and the lease provider, and none of the tax rules that make it work depend on either party being in a particular state. The car is registered where it is garaged, which is what sets the registration, duty and CTP costs. Your employer may have its own considerations, including payroll tax, which does vary by state, and those are questions for them rather than assumptions to make on their behalf.

Mainly choice and transparency, and the difference varies by dealer. A dealer referral is usually to a single provider the dealership has a relationship with, and the car is the one on their lot. A specialist arranges the lease independently of where the car comes from, so the vehicle and the finance are two separate decisions rather than one. Ask any provider the same questions: which financiers they can access, whether the car is sourced competitively or fixed to one dealership, what fees are in the payment, how running-cost budgets are set and what happens to a surplus, and what the end-of-lease options are. The answers matter more than the label.

Usually little or nothing directly, because the payments come out of your salary rather than on top of it, and an eligible electric car carries no FBT. It is not automatically neutral though. The employer takes on the administration, has an FBT reporting obligation even for an exempt car, and depending on the state and how the arrangement is structured there can be payroll tax and superannuation base implications. Those are questions for the employer to check rather than assumptions to make on their behalf.