Novated leases have become a popular way to finance vehicles recently.

Novated leases offer several attractive features for bosses and their employees. They are generally a blend of several different types of traditional vehicle leasing methods.

At its core a novated lease is a basic agreement between an employer, their employee and a vehicle finance company where the employee effectively retains ownership of the vehicle and the obligation is to the employer to make (typically) monthly repayments.

The big benefit of a novated lease over other, more traditional company car arrangements is that with a novated lease the employee retains ownership of the car and should they wish to change jobs have the option to take the car with them. From this point of view a novated lease is certainly convenient.

The other benefit is obviously financial. There are several ways in which a novated lease can be beneficial financially through the means of a tax deduction if the salary package is structured appropriately. The vehicle repayments can be deducted from an employee’s pre-tax income.

Novated lease repayments are flexible and the amount will depend upon duration of the contract, the price of the car in question, the residual payment and the agreed rate of interest.

Another significant benefit of a novated lease is that the employee typically has a lot more flexibility when it comes to choosing the vehicle and there are no restrictions on it’s use. The employee does not have to prove that the vehicle is predominantly used for work purposes – as is the case with many other forms of lease.