How does a Novated Lease work?
The employee (borrower) enters into a Finance Lease to purchase a vehicle and novates the lease payment to the employer. i.e. transfers the responsibility for the lease payment to the employer for the term of the lease. The employer pays the lease payments out of the employee’s pre-tax salary.
Should the employee leave the employer during the period of the lease then the borrower becomes responsible for the lease payment.
The borrower can novate the lease to a future employer if so agreed.
It’s worth nothing, Fringe Benefits Tax (FBT) is payable on the vehicle, and this expense is normally passed on to the employee. The amount of FBT depends on the kilometres travelled each year. The higher the kilometres, the lower the FBT.