When it comes to buying your next car, like many people, you probably don’t think there’s much choice in the way of financing options, so you may be surprised to find that there is a tax-efficient way to get your hands on your dream vehicle.

We have delved into the world of novated leases and put together an essential guide on what you need to know: 

What is a Novated Lease?

You’ve probably already bought a car using a traditional loan, or perhaps you’ve been able to buy a car outright, but another option is a novated lease, which you may not have heard of. So, what is a novated lease? In simple terms, it provides a very tax-efficient and flexible way for an employee to own a vehicle. Whilst the tax savings might not be huge, a novated lease leverages pre-tax income to allow you the benefit of having the car you always dreamed of but without the usual financial burdens that come with it.

Choosing the Best Finance Service Provider

Vehicles may well be the second most expensive item you purchase, so when it comes to choosing a financing company it’s important to do your research. Look for a company that has suitable experience and a proven track record. A good finance service provider will offer a range of products and will work alongside trusted brokers, able to deliver a reliable service with competitive deals. They should be experienced finance professionals able to guide you to get the finance you need.

How Does a Novated Lease Work?

In a novated lease, an agreement is made between an employee, an employer, and a financing company. An employee can choose the car of their dreams, subject to it being permitted by the leasing company, and pay for it with pre-tax earnings by entering into a novation agreement. This agreement passes the responsibility of the lease to the employer, who makes a deduction from the employee’s pre-tax salary equivalent to the lease amount.

Things to Consider

As with any financing arrangement, there are several things to think about before going ahead. First and foremost, you must be comfortable with the monthly payments, and it must fit in with your budget and financial plans. There may be additional fees associated with taking out a novated lease, so make sure you understand all these so there are no surprises along the way, and before you go searching for your dream car, make sure it falls within the specifications of the leasing company, for example, age and type of vehicle permitted. Click here for ideas on how to choose the right car.


Not everyone is eligible for a novated lease, but if you meet all the required criteria, then generally you would be accepted. You need to be in permanent or part-time employment, with a taxable income. Most employers will want you to have completed any probation period and they must agree to a novated lease.

So, when you’re looking to buy your next car, or you’re thinking of ways to attract or retain staff, make sure you investigate novated leasing which has benefits for both employers and employees. Click here for more information on buying a car.