A novated lease is a three way agreement between the employee, employer and a finance company. This leasing arrangement provides the employee with the opportunity to purchase a car using pre-tax salary, through their employer's agreement with the financier. Vehicle operating costs can also be included in the lease cost. Although there are some restrictions on types of employees who may be eligible, the option is widely available within Australia.
In an approach often referred to as "salary packaging" the employer deducts the lease payment amount from the gross salary of the employee. The employee pays for the vehicle and its operating costs in pre-tax dollars, lowering their taxable income. At the end of the lease period, the employee owns the car and may take advantage of any re-sale value.
Under this type of agreement, the employer assumes the employee's lease payment obligations for the term of the lease or until the employee leaves employment. The lease obligation then reverts to the employee who can negotiate a novated lease agreement with a new employer (if eligibility requirements are met).
Such salary packaging is a wonderful recruiting tool for employers as it provides a substantial financial benefit to employees with no additional salary or wage cost.
If you are in the market for a new car and may be eligible for a novated lease, this is a not-to-be missed opportunity to save money.