Article Highlights
Paid maternity leave lets you keep your novated lease running as usual with all tax benefits intact.
Unpaid leave requires a different approach: you can de-novate and pay directly, pre-pay before leave, or terminate early.
Returning to work part-time or full-time means you can re-novate your lease and switch back to pre-tax deductions.
Planning for a baby is exciting, but it also brings plenty of questions about your finances. If you're one of the hundreds of thousands of Australians with a novated lease, you're probably wondering what happens to your car arrangement when you take maternity leave.
The good news? You've got options. The answer depends on whether your leave is paid or unpaid, and what works best for your personal circumstances. Let's walk through how leave affects your novated lease and what you can do to keep things running smoothly.
How Leave Works With Salary Packaging and Novated Leasing
Before we get into maternity leave specifically, it helps to understand how any type of leave interacts with salary packaging.
When you're on paid leave, your employer continues to process payroll as usual. That means your pre-tax salary deductions for your novated lease keep happening automatically. Your tax savings stay the same, and nothing changes with your lease arrangement.
Unpaid leave is different. Because there's no payroll, there's no pre-tax salary to deduct from. Your employer can't take out lease payments, so the novation agreement effectively pauses. You're still responsible for the car's running costs and finance payments, but the arrangement with your employer temporarily stops.
Fair Work provides job protection for up to 12 months of unpaid parental leave, and you can request a further 12 months if needed. During this time, your lease doesn't just disappear. You'll need to work out how to keep paying for it.
Paid Maternity Leave: Business as Usual
If you're taking paid maternity leave, whether through your employer's scheme or the government's Paid Parental Leave programme, your novated lease can continue without interruption.
The government scheme currently provides 24 weeks of pay at the National Minimum Wage (increasing to 26 weeks from 1 July 2026). Many employers top this up with additional paid leave. As long as you're receiving taxable income through payroll, your lease payments can be deducted from your pre-tax salary each pay cycle.
Check that your pay during leave will cover your lease amount. Some employers pay at full rate, others at a percentage. If there's a gap, chat with your novated leasing provider before your leave starts. They can help you work out whether you need to adjust your budget or make other arrangements.
Your fringe benefits tax treatment stays exactly the same during paid leave. Your employer continues to use the employee contribution method to offset any FBT liability, so there's no extra cost to them and no change to your tax benefits.
Your Options During Unpaid Maternity Leave
Unpaid leave requires a bit more planning. Here are your three main options:
1. De-novate and Pay Direct
This is the most common approach. Your employer signs a deed of release that temporarily ends the novation agreement. You then pay the finance rental and running costs directly to the finance company, just like a regular car loan.
Your employer's FBT liability stops because they're no longer providing the benefit. When you return to work, you can sign a new novation agreement and switch the payments back to pre-tax deductions. It's usually a simple one-page deed that picks up where you left off, keeping the same residual value and lease term.
2. Pre-pay Your Lease
Some providers let you make a bulk pre-tax deduction before your last paid pay-run to cover the expected leave period. This keeps the FBT exemption running and means you won't need to worry about payments while you're off work.
This option isn't available everywhere and depends on your employer's payroll system. You'll need enough funds in your account and approval from both your employer and leasing provider. It's worth asking about if you want to keep things simple.
3. Terminate Early
If your circumstances have changed or you no longer need the car, you can end your lease early. You'll pay the residual value plus any remaining lease payments and applicable fees.
Get a payout figure first. Depending on how far through your lease term you are, you might face negative equity. The ATO sets minimum residual values (46.88% at two years, dropping to 28.13% at four years), so the earlier you exit, the higher the cost.
Returning to Work: Part-Time or Full-Time
Coming back to work part-time is increasingly common. Your novated lease can continue if your net salary after tax covers the lease deductions. Your provider can recast your budget to match your new income and working hours.
If you're returning full-time, re-novating is straightforward. You'll sign a new novation agreement with your employer and the lease payments switch back to pre-tax deductions. The tax savings kick in again from your first pay cycle back.
Credit Assessment and New Leases
If you're arranging a new novated lease while pregnant, the financier will assess your capacity to service the repayments based on your projected return-to-work salary. Some lenders ask for written confirmation from your employer about your expected hours and resumption date.
This is standard credit assessment criteria. The lender wants to make sure you can afford the financially binding commitment over the full lease term, including any period of reduced income.
Fringe Benefits Tax and Leave
The FBT rules don't change just because you're on leave. During paid leave, your employer continues to provide the car as a fringe benefit and uses the employee contribution method to cancel any FBT liability.
During unpaid leave, once you've de-novated, your employer is no longer the fringe benefit provider. The car might still be available for private use, but because you're paying directly, there's no FBT payable.
If you're leasing a low emissions vehicle like an electric car, the FBT exemption applies as long as the car meets the criteria (purchased after 1 July 2022 and under the luxury car tax threshold). Plug-in hybrids lost the exemption after 1 April 2025 unless your lease existed beforehand.
Save on Tax With Your Next Car
Whether you're planning maternity leave or already have a lease in place, a novated lease can help you save money on a new or better car. By packaging your car's running costs and finance payments into your pre-tax salary, you reduce your taxable income and pay less income tax overall.
Easi has been helping Australians save on vehicle costs since 1992. Our teams across the country understand how parental leave affects your lease and can model cash-flow options that suit your situation. We'll walk you through de-novating, setting up direct payments, or re-novating when you return to work.
Got questions about your personal circumstances? Give us a call on 1300 266 828. We're here to make novated leasing easy, even when life gets busy.
