A novated lease is an agreement between an employee, the employer and the financier. The lease is taken out in the name of the employee and the employer agrees to take on the repayment responsibilities for the duration of the employee’s employment. It is not recorded on the balance sheet of the employer.
If the employee leaves the employer, the novated lease may be transferable to a new employer or the employee can take on the responsibility of the repayments. The original employer no longer has any financial responsibility and is not left with a vehicle they do not require.
With a novated lease an employee may benefit by the reduction of tax as a result of having the repayments made out of pre-tax dollars. There may be fringe benefits tax consequences (based on the vehicle value and kilometres travelled) as a result of the transaction between the employee and the employer. Prior to engaging a novated lease, it is recommended to consult your tax professional. Similar to a finance lease, residual risk rests with the employee.