What is a novated lease?
Particularly in Australia, a novated car lease is a form of vehicle lease that enables a corporation, or business, to lease a vehicle on behalf of one of its employees. Novated means to be ‘transferred,’ as the financial responsibility for the employee’s vehicle is transferred to the employer.

Once the lease is taken out, the employer then makes lease payments for the employee’s vehicle. The amount of these payments is then deducted from the employee’s pre-tax income. After taking into account the type of vehicle to be leased, employee’s salary, kilometers traveled annually, and the lease interest rate, there may be tax benefits for both the employer and the employee.

Specifically, these employee tax benefits include savings on the worker’s income and goods-and-services taxes. When compared to company car arrangements, novated leases are often preferred because the employee has more options as to which car he may purchase. Additionally, as opposed to company car agreements, the employee is allowed to keep the car if he chooses to switch companies. If the employee leaves the corporation and is not hired immediately by another, the financial responsibility for the novated lease reverts back from the employer to the employee.

On behalf of the business, benefits abound. Particularly, businesses hail novated car lease calculator because it allows them to provide an increase in employee benefits with minimal or no cost to the company itself. Furthermore, the employee is responsible for upkeep of the vehicle, so the corporation escapes the responsibility of maintaining a corporate fleet of vehicles. Along the same lines, the company assumes no risk for the vehicle as it is off the company’s balance sheet (OBS). OBS means the asset, in this case the vehicle, is not part of the company’s financial summary, even though the company may benefit indirectly from the employee vehicle.

Novated leases are fairly new in the United Kingdom and Australia but have been a staple of American lease financing for years.