Thinking about leasing a car through your employer but not sure where to start? Novated leasing is one of the most popular ways for everyday Australians to drive the car they want while accessing genuine financial benefits. But before diving in, it’s important to understand how does a novated lease work, who can access one, and what eligibility requirements apply. From employer involvement to salary packaging a car and unlocking potential novated lease tax savings, here’s a simple breakdown of what you need to know before signing on the dotted line.
What Is a Novated Lease?
A novated lease is a three-way agreement between you (the employee), your employer, and a finance provider. It allows you to lease a new, used, or electric vehicle and have the repayments deducted directly from your salary — often from your pre-tax income. This is called salary packaging a car, and it’s a great way to reduce your taxable income while driving a vehicle that suits your needs.
One of the key benefits of novated leasing is flexibility. You can usually include costs like fuel, servicing, registration, insurance, and even tyres in your lease — all bundled into one regular payment.
Who Can Apply for a Novated Lease?
To be eligible for a novated lease in Australia, you must:
- Be a salaried employee (full-time or part-time)
- Work for an employer that offers salary packaging
- Have a stable income that supports the lease repayments
- Be over 18 and hold a valid Australian driver’s licence
Self-employed individuals or sole traders typically aren’t eligible unless they’re employed under a PAYG arrangement.
Your employer also plays a key role. They must agree to enter into the lease on your behalf and handle the pre-tax payroll deductions. If your employer doesn’t currently offer salary packaging, it may be worth asking — many are open to it, especially as novated lease tax savings can make for a compelling employee benefit.
Employer Requirements to Be Aware Of
Employers are responsible for:
- Making lease payments to the financier on your behalf
- Deducting your contributions from your salary
- Handling fringe benefits tax (FBT) reporting
The good news? If you’re leasing an eligible electric vehicle, you may be able to take advantage of the government’s FBT exemption on EVs — further boosting your novated lease tax savings.
Most larger organisations and public sector employers already support novated leasing, but smaller businesses are catching up fast as more employees look for ways to offset the rising cost of living.
Which Vehicles Are Eligible?
A wide range of vehicles can be leased under a novated agreement — from practical hatchbacks to luxury SUVs and even fully electric cars. Vehicles must generally be used for personal or commuting purposes (not business use) and must fall under certain cost thresholds, especially if you want to claim tax exemptions or benefits.
Used cars are also allowed, provided they meet the finance provider’s age and condition requirements. This flexibility makes novated leasing accessible for drivers at many income levels — not just those looking for brand-new vehicles.
Key Benefits to Keep in Mind
Still wondering how does a novated lease work in your favour? Here are a few of the standout benefits:
- Tax-effective: Reduce your taxable income through salary packaging
- Convenient: Bundle running costs into one simple payment
- Flexible: Choose the car, term, and features that suit your lifestyle
- Sustainable: Enjoy even greater savings with EVs, thanks to FBT exemptions
For many employees, this structure offers more freedom than a traditional car loan and better value than paying for a car outright.
Is a Novated Lease Right for You?
If you’re a salaried worker with access to salary packaging, there’s a good chance you’re eligible for a novated lease. By understanding how does a novated lease work, getting clear on your employer’s role, and exploring your vehicle options, you’ll be in a strong position to take advantage of this flexible financing method. From reducing upfront costs to maximising novated lease tax savings, the perks of salary packaging a car in Australia continue to attract more drivers in 2025.