How Novated Lease Works!
What Is a Novated Lease?
If you’ve been offered the option but don't know exactly what a novated lease is, here's your chance to become acquainted with it.
Also known as a car salary packaging or salary sacrifice scheme, a novated lease is an arrangement you make with your employer to use the services of a novated leasing or fleet provider for your work-related transportation needs.

With a novated lease, all you have to do is choose a car and then save yourself a significant amount of cash by paying for the car using pre-tax dollars from your salary. In this arrangement, the vehicle you choose becomes part of your salary package. You won’t need to worry about making payments because your employer will make car payments directly to the novated leasing or fleet provider from your pre-tax income.
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How Does a Novated Lease Work?
So, how does a novated lease work? If your company offers a novated lease salary sacrifice scheme, all you need is to go through the following steps:
  1. Send your novated lease enquiry to Easi.
  2. Our vehicle leasing specialists will then provide you with a quote based on the novated lease.
  3. You sign off the quote and submit your completed individual credit application. Your employer also signs off the quote provided.
  4. When everything is in order, your application is approved by Easi.
  5. You’ll then be asked to confirm the vehicle colour and accessories you want. Your designated Easi leasing specialist orders the vehicle based on your specifications. If you source the vehicle of your choice, Easi will send an invoice request to your chosen car dealer.
  6. Easi then generates all the required novated lease documents that need to be signed: Deed of Novation, Finance Schedule and Transfer of Ownership.
  7. The novated lease contract is settled by Easi.
  8. Easi takes charge of vehicle maintenance.
  9. If you leave your employer or are terminated from service, Easi will process the transfer of vehicle ownership to you, the employee.
  10. See? The novated lease salary sacrifice process is pretty straightforward and easy – especially with the help of Easi leasing specialists.
Novated Lease Benefits
There are several novated lease benefits for both employers and employees.
Employers benefit in the following ways:
  • Companies that offer novated lease arrangements usually attract more candidates because they are adding value to their employee salary package.
  • Offering novated leases is a less stressful alternative to running and maintaining an entire fleet of company vehicles.
  • Get acquisition fleet discounts.
  • When an employee leaves or is terminated, the employer is freed from the responsibility of making car payments to the finance company.
Individual Benefits
Opting for a novated car lease in your new job lets you enjoy the following advantages:
  • Discount on the purchase price: To promote their service, novated lease providers usually offer substantial discounts on car purchase costs, sometimes exceeding $6,000. That’s a lot of savings already, just for the price of the vehicle you choose.
  • No deposit requirement: Novated car leases do not require deposits nor take any deposit allowed under tax rules.
  • Greater flexibility with choosing a vehicle: Depending on the novated lease or fleet provider, you have the freedom to choose a vehicle you want.
  • Tax savings and more disposable cash: By making payments from your pre-tax salary dollars, you save on taxes and receive more spending money in the process. No goods and service tax (GST) will be charged on the initial purchase price of the vehicle and running costs.
  • Stress-free budgeted payments: With a novated lease, all payments are pre-arranged and budgeted for, so there are no unpleasant surprises and worrisome lump sum payments.
  • Vehicle ownership: At the end of the term, or when you leave (or are terminated by) your employer, vehicle ownership is transferred to you. This also means you’ll be dealing directly with the novated lease provider. You can also continue your lease even when you change jobs.
  • Convenient access to statements: Accessing statements is convenient and simple since transactions can be done online. So if you have any doubts or queries regarding your payments or any aspect of your novated lease, you can get the information quickly and easily.
  • Selling and trading assistance: If you want to change vehicles, you’ll get assistance in selling or trading your vehicle. This does away with the need to advertise or pay for sales listings for your old vehicle.
Novated Lease Tax Savings
Among the more popular benefits of the novated lease scheme are the savings on novated lease pre-tax deductions.
Since the repayments in a novated car lease are taken from pre-tax dollar earnings, the tax savings over the duration of the lease can be significant.
Moreover, when you purchase a car from a novated vehicle leasing provider like Easi, GST won’t apply to the cost of the vehicle nor to any running costs. And since Easi also takes over vehicle maintenance, these savings, when taken together, can mean savings in thousands of dollars.
What Happens at the End of a Novated Lease?
Once your novated lease ends, you’ll take over the funding of the novated lease residual value. At this stage, you have several options to choose from:
  • Get your vehicle auctioned off and buy a new one.
  • Arrange the sale of your car privately.
  • Pay off the residual value and purchase the car.
  • Trade your current vehicle for a new car.
If you opt to sell the car at the end of your lease, make sure it is in good condition. If your vehicle is in tip-top shape, it will be easier to sell your car at a price that’s equivalent to the residual value.
By choosing Easi as your novated lease provider, you’re assured of a well-maintained car with an up-to-date service history.


Our short answer to this question: Yes. Definitely.

Novated leases are definitely worth it and are actually one of the most affordable car financing options available for Australians. So, it’s a good thing they’re slowly gaining traction as more people come to understand the benefits they offer.

It’s cost- and tax-effective, so you have more spending money.

There are no minimum mileage requirements.

It makes getting a new car easy and convenient.

A novated lease is a practical, cost-saving solution for everyone.

A novated lease comes with a fuel card.

When you get a novated lease, the employer pays for the car lease (including all running costs) on behalf of their employee. Then the employer makes monthly deductions from the pre-tax earnings of the employee to cover the leasing expenses.

Once the contract term is over, the employee has the option to pay off the outstanding amount and take ownership of the car. Or they can trade the vehicle and get a new car model under a different novated lease.

If you want to pay less tax and see how much you can save on car running costs with a novated lease agreement, head to our novated lease calculator.

In general, you can claim deductions for expenses spent on a car you own or lease for work purposes. However, it’s different when you ‘salary sacrifice’ a car, as it is done through a ‘novated lease’ arrangement.

In this case, the employer is the party leasing the vehicle from the finance company, not you, the employee. In a salary sacrifice arrangement, the employer becomes entitled to the benefits of calculating the fringe benefits tax (FBT) payable by them on vehicles provided to employees. The employer either owns or leases the vehicle in a salary packaging arrangement, which makes the car available for their employee’s (you) private use.

So, since you, the employee, don’t own or lease the car in such cases, you can’t claim any ongoing running costs associated with the car, including depreciation.

Just like other financial establishments, leasing companies collect basic information on applicants to have a complete picture for assessment purposes. In particular, these lending establishments consider four key areas during novated lease application assessment: capacity, collateral, character and credit.

But in the case of novated leasing, most everyone is considered eligible as long as they are permanently employed; that is, they have a wage and are paying taxes. For some lenders, it also helps for you to not have a bad credit history.

For novated leasing, most financiers consider the fact that the lease payments will be coming from your employer before you pay any taxes. So, even if you have minor credit issues, novated leasing financiers may be ready to overlook those as long as those are paid or may be paid before the finance is settled.

This question is closely related to the previous one, so the answer is definitely a ‘yes’ – a credit check is a routine task a financier must perform when you apply for a novated lease.

After completing an application, you’ll be asked to provide proof of taxable income, valid identification and privacy consent. Your application tells the bank or financial establishment that you’re in a good financial position and have the capacity to make lease repayments.

The credit check is done to complete your application process and indicates to the bank or finance company that you have the ability to repay the loan amount. In case there’s a negative entry in your credit file, as long as it has been resolved or it’s a minor issue (e.g., late utility bill payments), it shouldn’t affect the outcome of your novated lease application.

It’s not so easy getting out of a novated lease prematurely. Unlike in a car loan where you can sell the vehicle and use the proceeds to pay off the balance, leasing is totally different.

Since lending companies generate a profit based on the terms of your lease and the payments you make, you’re supposed to conclude your lease within the agreed time frame. So, it’s understandable for them to ensure you adhere to the car lease terms.

To discourage premature termination, certain penalty charges come with it, depending on the financier. These possible penalties and added expenses include:

Full payment for the remaining balance of the lease

Early termination fee

Costs of preparing the vehicle for sale

Storage and transportation of the vehicle

Leasing-related taxes

Negative equity between the remaining lease amount and the current value of the vehicle

Being required to pay off all the remaining payments of the lease

Again, the conditions of early novated lease termination all depend on the lessor, but you should expect to encounter certain financial complications or difficulties.

Of course, you can have a used vehicle for your novated lease. You could also opt for a new or demo vehicle or even one you already own.

However, there’s some concern over the age of the vehicle because a novated lease vehicle shouldn’t be older than 10 years by the time the lease ends. The only exceptions to this rule are vintage vehicles and other vehicles that maintain their value even beyond 10 years. To be sure, always check this with your novated leasing provider. There are also different terms for novated leases involving luxury vehicles, so make sure you clarify them first with your lessor.

Moreover, you have the freedom to get a vehicle privately or from a dealership. If you’re planning to get a vehicle privately, the lessor may conduct a physical inspection on the vehicle to ensure everything is in order and that it isn’t currently under finance with a different lender.

In case you change jobs or have a new employer during your novated lease term, you have a couple of options to consider:

You may transfer your novated lease to your new employer.

You can continue making your lease payments monthly based on your existing agreement with your novated lease provider, minus running costs that were included previously.

You have the option to buy the vehicle outright and pay off the rest of the lease, inclusive of the residual value amount.

If you’re in this situation, it’s best to discuss it with your lessor so they can help you work out an ideal transfer arrangement.

Not all employers offer novated lease arrangements, so if you are interested in annual salary packaging or sacrificing, you need to ask your employer or check with human resources.

However, more employers are being encouraged to offer novated leasing to attract and retain top talent, especially since they can also benefit tax-wise from the arrangement.

Although your novated lease provider will already make sure you benefit from salary packaging financially, you’ll know for sure that you have the best deal if you can calculate your novated lease FBT.

You can choose from two methods of novated lease FBT calculation: the statutory method and the operating costs method.

Statutory method: Makes use of the base value of the vehicle as the basis for calculating the GST. It also assumes that you (the employee) spend 20% of your car usage for personal purposes. This method is recommended for novated leases where the employee hardly uses their car for business or work purposes.

Operating costs method: This method calculates the novated lease FBT using the total costs of operating your car and the percentage of private use as bases. It’s a method of FBT calculation suitable for those using their car mostly for business purposes.

The formula for the statutory method is as follows:

Taxable value = (A x B) – C

A = Car base value (drive away price minus on-road government costs)

B = Applicable statutory percentage of 20%

C = Employee contributions (if applicable)

The operating costs method formula is as follows:

Taxable value = (A x B) – C

A = Total operating costs

B = Percentage of private use

C = Employee contributions (if applicable)

Novated Lease Resources
While we’ve provided the salient points of novated vehicle leasing, there’s so much more you can learn about it from our resources.
After all, the more you know about the novated lease salary sacrifice scheme, the easier it will be for you to make an informed decision.
View Resources

Drive Your Dollars Further Like Our Clients

Sarah's Annual Savings with Easi:
With Easi, It’s all there in the name! The process has been easy from start to finish and I couldn’t be happier with my new car - and all the money I’ve saved!
Paul's Annual Savings with Easi:
Easi have been nothing but professional, helpful and efficient and I couldn’t recommend them enough for anyone looking for a novated lease.
Jenny's Annual Savings with Easi:
Easi have made a complex process straightforward and efficient and I would recommend an Easi novated lease to anyone wanting to save on a new car.
Steve's Annual Savings with Easi:
I’ve had a Easi novated lease for 4 years now and I still can’t believe how much I’ve saved on my car costs! If you're thinking about a novated lease with Easi, just do it!
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