Novated Car Lease is an arrangement where the employer leases a vehicle for an employee with the employee sacrificing salary to cover payments and other costs. Benefits can be received by both parties. While either party may initiate the idea, employers may offer the opportunity to key employees as an incentive or in place of a salary increase. The start of FY26 may be the ideal timing to consider such an option as many employers offer wage rises at this time of year.

While benefits can be realised, there are also factors to consider by both employers and employees, and a solution must meet the approval of both parties, and the lender. As specialists in commercial financing, we have extensive experience in sourcing and structuring salary sacrifice vehicle loans. Consider what is involved and speak with one of our brokers for how this may work for your business.

Novated Car Lease Overview

Novated Car Lease with salary sacrificing is a commercial car loan product which involves the employee of a company, the employer and the lender. The employer takes on a loan to purchase a vehicle for an employee and the employee sacrifices some of their salary to cover the costs. The costs typically include the monthly lease payment, registration, insurance, servicing and other running costs. The sacrificed amount is agreed between employee and employer and deducted from the employee’s pre-tax wages each pay cycle.

The employee can choose the vehicle that they want to buy, but the employer may place a limit on the price. This type of financing can be for all types of motor vehicles and motorcycles. Both employers and employees can raise the idea, but both will need to agree on both the concept and the finance commitments before proceeding.

As the loan is being taken out in the company name, the business will need to provide the necessary financial documentation for the application. Interest rates, terms and loan conditions are based on the company’s credit rating and financial position. The financials and credit rating of the employee are not assessed as part of the application approval process.

A fixed rate of interest and fixed terms apply to the loan. A residual is provided according to the ATO rulings. When all monthly payments and the residual are finalised, the ownership of the vehicle is transferred from the name of the company to the employee. When all payments are finalised, no further salary is sacrificed.

Novated Car Lease Employer Benefits

With the expenses involved in recruiting and training staff, staff retention can be a significant benefit of a salary sacrificed vehicle loan. Having the opportunity to have a vehicle purchased on their behalf, at business interest rates, and possibly reduce their tax payable, may be an attractive incentive for staff to commit to the company. With Lease terms available up to 7 years, this may be a potential assurance for the employer that a key member of the team will be with the business for some time. Saving the costs of recruiting and training and reducing risk of losing valuable skills.

If the employee does choose to leave the company before the end of the Leasing term, they must finalise all outstanding payments and residual on the vehicle finance in order to receive ownership. That may involve them having to take out a personal loan.

The business benefits from the tax-deductible Leasing payments and the deductibility of the other costs of running the vehicle as a business asset. All while the employee is contributing through salary sacrifice to covering those costs. As a further incentive, the employer may agree to a sacrificed salary portion which only covers part of these costs.

Employers should be aware that Fringe Benefits Tax may apply for the percentage of kilometres used for personal travel. 

Novated Car Lease Employee Benefits

When discussing a Salary Sacrificed arrangement with an employee, the employer can highlight the benefits they will receive. These include being able to purchase a motor vehicle with financing at business interest rates. Business rates are lower than personal car loan interest rates.

Where the employee has other loan commitments such as a home mortgage, they may not want to take on additional finance. For individuals that are not that good at saving for deposits and purchases, sacrificing part of their salary towards their goals may be an ideal option.

Depending on the individual’s salary band, sacrificing part of the salary for the Leasing costs may reduce their personal income tax. The sacrifice is deducted from the salary before tax. This may result in the individual moving down to a lower tax bracket.

Securing a Mutually Agreeable Novated Car Lease

Salary sacrificed vehicle finance is a more complex arrangement than a normal Lease as it involves all parties. Utilising our expert brokers services to source the most affordable offer and structure the outcome to best meet agreement with both parties may be the ideal way forward.

To discuss Novated Car Lease as an option for your business, contact Business.Finance on 1300 000 033.

DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.