Frequently Asked Questions

What is a novated lease arrangement?

A novated lease is a special kind of motor vehicle lease that allows employees to operate personal motor vehicles in a tax and cost effective manner when compared with more traditional forms of finance.

'Novated' refers to an agreement between the employer, the employee and the financier of the vehicle, whereby the employer agrees to meet the repayments of the finance lease while the employee remains employed. In return, the employee 'Sacrifices' a portion of their salary to cover the cost of the finance.

Why are novated leases good?

Under a novated lease arrangement, employees can save signifcant amounts of money compared to financing a vehicle using more traditional means such as a dealer finance, personal loans, home loan offset, or even buying a vehicle outright. Novated leases can even be obtained for used cars, or the car you already own and operate.

Some of the benefits of novated leasing include:

For the employee

• Significant income tax savings
• Savings on GST that would normally be incurred on vehicle expenses
• Savings on GST on the purchase price of the vehicle
• Access to volume discounts if the employer has many vehicles under this scheme
• More flexibility in the choice of a car compared to a 'company car' arrangement

For the employer

• A way to effectively increase employees salaries with no or minimal cost to the business
• A more cost effective alternative to operating a fleet of company vehicles
• Employee vehicles are 'off balance sheet'
• Access to GST input credits for vehicle expenses

Does novated leasing work for everyone?

Novated leases will work for about 80% of people who drive a car. The classic case for a novated lease is someone who is on a reasonable income, buying a reasonably expensive vehicle, and driving many kilometres per year, but a novated lease will still provide significant savings even if you are on a lower income, are looking at a less expensive car and don't drive your car all that much.

The three variables that effect the savings that can be gained from a novated lease are:

• Your income (those on higher incomes can save more tax)
• The cost of the car - a more expensive car will mean more savings
• How many kilometres per year  you drive - more kilometres per year means greater savings.

To get a better idea of how much you could save under a novated lease arrangement, have a play with the calculator.

Can anyone get a novated lease?

Technically, any employee can enter into a novated lease arrangement, however it also requires your employer to enter into the agreement, so in practice, not everyone can get a novated lease. Generally, novated leases are arranged on behalf of employers by fleet management companies such as SMB Salary Packaging.

What sort of car can I get?

One of the great things about novated leasing is that there are generally few restrictions on the type of cars you can novate. Novated leases are typically used for personal cars (as opposed to company cars), so it is generally up to the employee to choose their own car.

Some employers do put restrictions on the types of cars that can be purchased under a novated lease.

Can I get a novated lease on a used car?

Yes. In addition to new vehicles, novated leasing is available for used vehicles, or even your existing vehicle under an arrangement called 'sale and leaseback' where you effectively sell your existing car to the finance company so that you can save tax and gst on operating expenses.

There may be a restriction on the minimum value of the vehicle to be financed.

Do I need to use my car for business to save tax?

No, you do not need to be using your car for business purposes to save tax under a novated lease arrangement. In fact generally, novated leases are better suited for vehicles with mainly private usage. If you do a lot of business kilometres, you may be better off under a different leasing arrangement.

Under a novated lease, the main variable that affects the amount of tax savings that can be achieved is the number of kilometres you drive per year. The more kilometres you drive the more tax you can save. 

This calculator can be used to see how novated leasing works, and the amount of tax you might be able to save.

Are there any catches?

There aren't any real catches with novated leasing, but it pays to spend some time understanding how novated leasing works, and how it differs from other leasing arrangements. In particular, you should make sure you understand what happens at the end of your lease term.

All novated leasing arrangements include a 'residual value' component which is a lump sum that you need to pay the financier at the end of the lease term. If you decide to sell your vehicle at the end of the lease term, and you sell it for less than the residual value, you are still liable for the shortfall between the sale price of the vehicle and the residual value.

The other thing that you need to understand with a novated lease, is the way that FBT (Fringe Benefits Tax) works. FBT is calculated based on the actual number of kilometres travelled per year. If you travel less kilometres than you estimated when you enter into the arrangement, it is possible to end up with a higher FBT liability.

Aren't novated leases for people on high salaries driving expensive cars?

No, novated leases can save significant amounts of money for people on all salaries driving all kinds of cars. The amount of money that you will save with a novated lease depends on three things:

• The number of kilometres you drive
• The cost of the car
• Your gross salary

What do I do if I have lost my fuel card?

Contact SMB immediately on 1800-818-487 to arrange for your card to be cancelled and reissued.