Skip to main content Skip to main navigation
Skip to access and inclusion page Skip to search input

Is a novated lease right for you?

Image person unlocking a car door

4-minute read

If you’re looking to buy a car, you may have heard about novated leasing, an arrangement between you, your employer and a finance company to use your pre-tax salary to purchase a car. Find out some of the things you need to consider when deciding if a novated lease is suitable.

Key take-outs
  • You get to choose a car you want to finance via a novated lease.
  • Consider what the pros and cons of a novated lease could mean for your financial situation.
  • Check that you’re eligible to get a novated lease. 
  • Ensure that the requirements of the lease and your needs are aligned.


How novated leases work

Generally, there are a few steps to setting up a novated lease arrangement:

  1. Pick a car that you wish to lease. Unless stated by your employer or the finance company, this could be a new, used or existing car of any model or make.
  2. Get a quote from the finance company. If you’re happy with it, you’ll need to submit details about your finances. 
  3. Once your application is processed, the finance company will prepare a lease agreement for you and your employer to sign so that regular lease repayments can be made from your pre-tax salary.

Benefits and costs of novated leasing

When deciding whether novated leasing is right for you, it could be useful to understand the costs and benefits, and what they could mean for your financial situation.


  • No large cash outlay upfront - A novated lease is an option to finance a new car over a period of time without needing you to pay the purchase price upfront.
  • Less income tax - Given that the lease payments are deducted from your pre-tax salary, it may lower your taxable income, which means that you could pay less tax. 
  • Goods and services tax (GST) savings - You could save GST on the purchase price of a car if it’s bought from a registered dealer. 
  • Fringe benefits tax (FBT) savings - If you’re leasing an eligible electric vehicle, you might not need to pay fringe benefits tax (FBT) on your lease.
  • Drive as little or as much as you want - There’s no minimum or maximum requirement on how many kilometres you need to drive.


  • Less disposable income - You’ll have less take-home pay as the lease payments are taken from your pre-tax salary. 
  • End of lease residual amount - You may need to make a lump sum payment (similar to a balloon payment) to cover the residual value of the car at the end of the lease.
  • FBT impact - A novated lease is a type of benefit provided to employees, for which your employer may have to pay FBT to the Australian Tax Office. Discuss the lease with your employer to understand how this could impact you and them.
  • You don’t own the car - The finance company owns the car during the lease term. If you prefer to own the car from the day of purchase, you could consider a car loan or buying the car outright. 
  • Only available to salaried employees - If you’re a business owner and aren’t paid as an employee, you can’t apply for a novated lease. However, there are other business financing options you could explore. 

Eligibility criteria

Speak to your employer to see if they offer novated leasing as an employment benefit and if you qualify. If you’re leaving your current employer and have an existing lease, discuss with your new employer whether you can transfer it to your new employment.


Additionally, check the finance company’s eligibility criteria to ensure that you meet the requirements.

What to look for in a lease agreement

Review the lease to ensure that it meets your needs. For example:

  • What can you salary sacrifice? Some agreements only allow you to salary sacrifice (also referred to as ‘salary package’) the purchase price of the car and lease administration fees while fully maintained leases also include running expenses (e.g. fuel, insurance, repairs) in one regular payment. 
  • Can you novate a new, used or existing car?
  • Can the car be used for personal or business purposes, or both?
  • Can you choose your lease term?
  • What are your options at the end of the lease? Typically, you could trade in your car for a new one, buy it from the finance company or get a new lease.

While potential savings on the price and running costs of a car can make a novated lease an attractive financing option, you’ll need to look at your requirements and situation to ensure that it’s suitable. You should seek professional, independent advice to determine any tax impacts novated leasing may have on your personal circumstances. 

Things you should know

You should seek independent, professional tax advice to determine any tax impacts a novated lease arrangement may have on your circumstances.

Westpac’s products are subject to terms, conditions, fees and charges; and certain criteria may apply. Before making a decision, read the disclosure documents for your selected product or service, including the Product Disclosure Statement and T&Cs; and consider if the product is right for you.

The information in this article is general in nature and does not take your objectives, financial situation or needs into account. Consider its appropriateness to these factors; and we recommend you seek independent professional advice about your specific circumstances before making any decisions.