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What is Novated Lease

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Many employers that offer attractive salary packages include car incentives or car rental benefits as part of the salary package to attract employees. These vehicle benefits allow employees to use a car usually under a Lease Agreement. Listed below are a few things that will help you understand what is Novated Lease.

In Australia, Novated Lease is an agreement between three parties that are, the employee, the employer and the lease company. In this type of agreement, the employee hires a vehicle from the lease company and the employer agrees to be responsible for the vehicle that has been hired. In most cases, the employee doesn’t have to worry about making payments since the employer pays for the leased vehicle from the employee’s pre tax salary income.

There are three types of lease agreements offered to buyers in Australia.

  • Novated Finance Lease is the first type of agreement
  • Novated Operating Lease is the second type of agreement
  • Fully Maintained Novated Lease is the third type of agreement.

In the first type of Novated agreement, the risks and benefits associated with the leased vehicle remain with the person using the vehicle that is the employee. In this type of contract the employee is not only responsible for paying GST but also residual payments at the end of the lease.

In the second type of Novated agreement, the residual risk value is the responsibility of the lease company and it is the employee’s responsibility to hand over the vehicle in a fair condition with an agreed number of used kilometres. Once the vehicle is handed back, the lease company is then responsible for the vehicle.

In the third type of Novated agreement, the employee is given various benefits and many types of expenses such as petrol, car insurance and maintenance are included in the agreement. In the case of a fully Maintained Novated Agreement, a fleet management company packages all the expenses of the car into a monthly car lease payment and these payments are collected by the fleet management company at the end of the month.

There are many benefits of opting for Novated Lease agreements, and these benefits include using a car without worrying about maintenance and payment issues since the employer usually pays for the leased vehicle. Depending on the type of agreement opted for, the employee can enjoy one or more of the benefits mentioned above and he can also enjoy additional benefits such as a fixed interest rate or lesser Fringe Benefit Tax.

Buyers who are interested in purchasing Novated agreements are encouraged to learn about all the benefits of the three types of contracts before deciding which agreement is ideal for them.