A novated lease is a car leasing solution through your employer.
You will sacrifice a portion of your salary each month to cover the costs.
With a fully maintained novated lease, your employer will also cover the maintenance costs.
What is a fully maintained novated lease?
Under a fully maintained novated lease, you enter into a three-way agreement between you, your employer and a finance company. Your employer purchases the car on your behalf, then deducts repayments from your salary.
The lease rentals and other operating expenses such as service and maintenance, accident management and insurance, are also deducted from your pre-tax salary. While these payments are made by your employer on your behalf, the control of the car and its maintenance remains in your hands.
By salary sacrificing in this way, it can help reduce your taxable income, and allow you to get the car you want when you need it. Your employer will usually let you choose the car you want and then help arrange the financing and insurance you need to secure the car.
How is this different to a non-maintained novated lease?
With a non-maintained novated lease agreement, your employer still agrees to purchase the car on your behalf with you sacrificing the repayments through your salary. However, any costs for maintaining the car (like insurance, servicing and repairs) will come directly from you.
Who can use this type of finance?
A fully maintained novated lease can suit anyone who has a salary package, wants to own a car and drives a significant amount of kilometres each year.
If you don't have access to a salary package, or prefer to source and pay for your own car, this may not be an option for you.
Pros and cons
Pros
Potential tax savings. With a fully maintained novated lease, deductions are made from your pre-tax income, which can help reduce the amount of tax you pay.
Transferrable agreement. A fully maintained novated lease is transferrable if you leave your job. This means the lease can be transferred to the employee or, in some cases, to the new employer.
Complete car management. A fully maintained novated lease offers you cover for all car operating expenses with regular monthly repayments. You can benefit from pre-authorised maintenance service for your fuel, oil and tyres, accident management and other running costs.
Cons
Temporarily lowers your income. You will be sacrificing part of your income for the lease repayments and maintenance of the car. This can leave you with less money for other needs such as rent and food.
Limited availability. Not all employers offer salary packages that allow you to get a fully maintained novated lease. People with no regular income such as freelancers and business owners also won't be eligible for this type of finance.
Form of debt. This type of finance is still technically a form of debt. You should also carefully examine the cost of the car lease, including the tax implications, interest charges and upfront payments that could make the lease more costly.
How does a fully maintained novated lease affect your tax?
Because your repayments are taken from your pre-tax salary, it reduces the amount of income you have to pay tax on. Depending on your annual salary, this could really reduce your tax bill! For example, if your annual lease costs bring you below a tax threshold, you'll pay much less tax than you were before.
However, your monthly take-home pay is likely to be reduced for the duration of the lease.
For more information on tax brackets and how taxable income works, see our guide here.
How to compare fully maintained novated lease options
Repayment flexibility
A fully maintained novated lease that allows you to make manageable, regular payments can make it easier to manage the change in your take-home pay. You may also want to check the potential for additional payments or balloon payments, which could allow you to pay off the car sooner.
Fuel options and discounts
A fully maintained novated lease covers fuel costs, but finding a lease agreement where you get discounted rates on fuel and a choice of fuel stations can make it more affordable for you in the long run.
Covered expenses
Most fully maintained novated leases will cover the vehicle purchase, insurance, registration fees, fuel and other expenses such as accident management and maintenance costs. But it can vary depending on the lease agreement, so make sure you check what's covered and what's not.
Out of pocket costs
The repayments for a fully maintained novated lease come out of your pre-tax income. This means your take-home pay will be lower compared to what it was before the lease agreement. There may also be additional fees for maintenance or transfer of the lease if you change jobs. Make sure you check these costs to decide if this type of car finance is right for you.
Leasing Calculator
When comparing vehicle finance options, it's generally helpful to know what monetary figures you are working with. You could use the calculator below to get an idea of the costs involved.
How to apply for a fully maintained novated lease
A fully maintained novated lease can be an affordable way to buy a car, but it is only available with employers that offer it as part of a salary package. So, the first thing to do is check that this option is available.
If it is, you may also need to provide:
Vehicle details. This includes vehicle make and model, build year, where you want to buy it i.e. dealer, auction, private seller.
Financial details. This includes the lease length you prefer, the vehicle price, and the running.
Contact information. This includes your name, address and phone number, name of your current employer and details of your gross salary.
What happens if you leave your employer while you have a fully maintained novated lease?
Because you'll be paying off the car over a period of time, it is possible that you'll leave your employer during the novated lease. That's ok, but the responsibility of meeting the repayments is still on you.
You can transfer the agreement to your new employer, as long as they allow you to salary sacrifice in this way.
You may also be able to make an agreement with your existing employer to continue making repayments to them until the car is paid for, or you can take over the whole agreement yourself.
What happens if you write off the car?
If you are involved in an accident with your car, the first thing to do is call the insurer (which is paid for as part of the novated lease if it is fully maintained). This may or may not provide enough cash to pay off the lease, but either way, the finance company will need to be paid the remaining amount.
Matt Corke is Finder’s head of publishing ventures. Prior to this he was head of publishing for Australia, New Zealand and emerging markets. Matt built his first website in 1999 and has been building computers since he was in his early teens. In that time, he has survived the dot-com crash and countless Google algorithm updates. See full bio
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