Novated leasing is a dynamic industry. By keeping up with the latest news, you can take advantage of limited-time tax incentives, offer employees an attractive salary packaging perk, or lock in an unbelievable price on a new (or used) vehicle.
Whether you’re an employee or business owner, wondering, “What is novated leasing?” or going down the rabbit hole on regulatory changes, this guide is for you.
What’s in this guide:
- How vehicle technology impacts novated leasing
- Regulatory changes affecting novated leasing
- Changes in employee preferences and perks
- What novated leasing could look like in the future
Innovations in vehicle technology
Novated leasing is driving a boom in Australia’s electric vehicle (EV) market.
According to the latest National Automotive Leasing and Salary Packaging Association (NALSPA) data, EVs made up 35-40% of all new novated leases in the first few months of this year.
If you’ve been following the news on novated leasing, you’ll know why. If not, here’s a quick guide on how a novated lease could make an eligible electric car or plug-in hybrid car more affordable:
- FBT exemptions: Eligible low and no-emission vehicles are exempt from Fringe Benefits Tax (FBT), an extra levy which usually applies to perks that employers offer to staff. FBT exemption means all the payments are made before-tax, instead of a mix of before and after-tax. This means a novated lease could save you thousands in income tax payable each year.
- Lower running costs: With fewer moving parts to service, no (or very low) fuel costs, and FBT exemptions on associated costs like registration, insurance and repairs, an EV on a novated lease can be significantly cheaper to run.
- Fleet discounts: Sourcing an EV through Fleetcare opens the door to significant discounts on new vehicles.
FBT exemptions apply to eligible cars valued under $89,332 and first held and used after 1 July 2022, including second-hand cars.
However, the good times won’t last forever. There are already regulatory changes coming down the pipeline, including an end to FBT exemptions for plug-in hybrids (PHEVs) purchased and driven after 1 April 2025.
We also don’t know what will happen to the Government’s favourable FBT policy after the next election.
If you’re not ready to embrace the EV revolution just yet, keep an eye on the news to make sure you don’t miss your opportunity.
Simplify novated car leasing
Novated leasing isn’t complicated, but with the right advice you can maximise your tax advantage and stay ahead of any regulatory changes.
For example, the current FBT exemption has a few important asterisks and eligibility requirements:
Luxury Car Tax
The car must have been priced under the Luxury Car Tax (LCT) threshold when it was sold. Eligibility depends on the original value, not the resale price. The LCT threshold in FY2023-24 is $89,332, rising to $91,387 in FY 2024-25.
This means a second-hand Model Y Performance is still ineligible – even if it’s on the market for under $89k this year – because the list price for 2022 and 2023 models was above the LCT threshold in those years.
Salary packaging rules
The Australian Tax Office (ATO) outlines rules for salary packaging, including novated leases.
There are detailed guidelines on how novated leases should be structured to comply with tax laws. This includes FBT and usage calculations, documentation requirements, residual values and employers’ reporting obligations.
The ATO has made efforts to simplify the guidelines, but it’s always worth seeking advice from a novated leasing expert to ensure your lease arrangement is fully compliant.
ATO data-matching program
In early 2024, the ATO quietly announced a program to collect and publish novated lease data.
The program helps the ATO “fulfill [its] responsibility to protect public revenue and maintain community confidence in the integrity of the tax and super systems.”
Reading between the lines, this could expose companies that aren’t fulfilling their reporting and tax requirements for novated leases (either deliberately or accidentally).
Our telematics solution makes FBT reporting incredibly easy and eliminates compliance risks. You get accurate, real-time data on fuel card usage, tolls and personal vs business usage, ensuring reporting is always accurate and thorough.
Learn more about telematics and advanced FBT.
All’s fair in work and novated leasing
While the Fair Work Act (2009) doesn’t directly address novated leasing, it does influence the terms and conditions of employment, including benefits like novated leases.
For example:
- Novated leases must not reduce an employee’s pay to below the minimum wage
- All deductions must be agreed in writing
- Employers must handle terminated employees’ novated lease transitions carefully, ensuring all final payments and entitlements are processed correctly
Adapting to dynamic employee preferences
An appetite for EVs isn’t the only thing influencing the popularity of novated leases. Several factors have more Australians asking, “What is a novated lease, and is it right for me?”
Cost of living
Faced with higher household budgets and less disposable income, Australians are looking for alternative options to finance a vehicle.
Novated leases could be more affordable than traditional financing and could cost less (over the life of the lease) than buying and running a new car outright.
“Many workers are stretched to the limit - there’s only so many hours they can work in a day to pay the bills and other everyday expenses. But a lot of workers also may not realise that they can potentially increase their take-home pay very simply through salary packaging, otherwise known as salary sacrificing, where they can use pre-tax dollars to pay for selected expenses and save money in the process.”
- NALSPA chief executive Rohan Martin
Aging cars
The average age for Australian passenger vehicles rose from 10.8 years in 2022 to 11 years in 2023.
While that might not seem like much, it continues a trend of cars getting older. As the ABC notes, there is “less money around” for Australians who want safer, more economical cars – i.e. newer cars.
Novated leasing allows you to upgrade your aging car, streamline your budget, and feel safer on the road.
Employment perk
Novated leasing is a potential perk that helps businesses retain good people and attract top talent without increasing the incentives budget.
The latest data from Gallup’s 2024 State of the Global Workplace survey shows that 74% of Australian workers – three in four – think now is a good time to change jobs. Almost half (44%) are looking for their next job.
It’s never been more important for unsatisfied employees to speak up, and employers to listen and act.
Read more: Novated leasing myths and misunderstandings.
Stay updated with the latest novated leasing news
Novated leasing is a dynamic and evolving field. By staying informed, you can unlock the full potential of novated leasing for yourself or your business.
Here at Fleetcare, we regularly publish insights, tips, and the latest news on novated leasing. Join our social media communities via the links below or bookmark the Fleettorque blog.
If you’re interested in learning more about novated leasing, including what it is and whether it’s right for you, get in touch with the Fleetcare team today. Call us on 13 43 33 or drop a line via the website.