Question 1

How does a novated lease work?

Accepted Answer

A novated lease is a three-way agreement between you, your employee and a finance provider. You deduct the agreed lease payments and running costs from your employee’s salary each pay cycle, using pre-tax and post-tax deductions depending on the arrangement. Those funds are then used to meet the lease and associated vehicle costs. The specific responsibilities of each party are set out in the relevant lease and novation agreements.

Question 2

What are the potential benefits of offering novated leases to employees?

Accepted Answer

Offering novated leases can be a cost-effective way to attract and retain talent without requiring your business to purchase or maintain company vehicles. By facilitating salary packaging arrangements, you can give eligible employees access to potential tax benefits while strengthening your overall employee benefits offering. It’s a practical way to add value for your team without the expense or responsibility of managing a company-owned fleet.

Question 3

Which employees may be eligible for a novated lease?

Accepted Answer

To qualify, employees generally need regular, verifiable income and access to novated leasing through their employer’s salary-packaging policy. Full-time and permanent part-time employees are commonly eligible, while eligibility for casual employees can vary by employer and provider. Sole traders and independent contractors generally don’t qualify. Each application is ultimately assessed based on individual earnings, credit approval and residency status.

Question 4

Does offering novated leases cost the employer anything?

Accepted Answer

Generally, no. Setting up and offering a novated leasing program incurs no direct establishment fees for your business. All vehicle purchase costs, finance charges, fuel, maintenance and insurance are funded by the employee through their salary deductions. You provide the setup, and they fund the car.

Question 5

What is the employer responsible for under a novated lease?

Accepted Answer

Under a novated lease, your business is responsible for managing payroll deductions each pay cycle and remitting those funds to the leasing provider. You are also responsible for standard compliance, including Fringe Benefits Tax (FBT) obligations and reporting Reportable Fringe Benefits Amounts (RFBA) where applicable. The employee remains responsible for selecting, maintaining and insuring the vehicle, while the exact responsibilities of each party are set out in the lease and novation agreements.

Question 6

How are novated lease payments managed through payroll?

Accepted Answer

Once the lease is approved and settled, we provide your payroll team with a clear deduction schedule. Each pay cycle (weekly, fortnightly or monthly), your payroll team deducts the specified amounts directly from the employee's salary, then transfers the payment to the financing company in accordance with the schedule. Once it's scheduled, it runs like clockwork.

Question 7

What payroll and reporting changes are required?

Accepted Answer

To set up a novated lease, you’ll need to set up a recurring deduction in your existing payroll software. At the end of the financial year, you may need to report the taxable value of the benefit on the employee's annual Single Touch Payroll (STP) / income statement as a Reportable Fringe Benefits Amount (RFBA), in line with ATO requirements.

Question 8

How are Fringe Benefits Tax and GST handled?

Accepted Answer

FBT and GST treatment depends on the vehicle, how the novated lease is structured and your business circumstances. For vehicles that are not FBT-exempt, post-tax employee contributions may be used to reduce the taxable value of the car fringe benefit. Eligible electric vehicles may qualify for an FBT exemption, subject to ATO requirements. GST-registered employers may also be entitled to claim GST credits on eligible costs associated with the arrangement. Your business should confirm its specific tax and reporting obligations with its tax adviser.

Question 9

Can employees package new, used and electric vehicles?

Accepted Answer

Yes. Novated leases can generally be used for new and eligible used vehicles, subject to lender and employer criteria. Certain battery electric and hydrogen fuel-cell vehicles may also qualify for an FBT exemption where ATO eligibility requirements are met, including the applicable Luxury Car Tax threshold. Plug-in hybrid vehicles (PHEVs) generally no longer qualify for new FBT-exempt arrangements from 1 April 2025, though transitional rules continue to apply to eligible existing arrangements.

Question 10

Can novated leasing work with our existing payroll or salary-packaging provider?

Accepted Answer

Yes, absolutely. A novated lease can work alongside standard payroll software (like Xero, MYOB or Employment Hero) or any third-party salary-packaging provider you use. At Fido Finance, we provide standardised deduction schedules so your team doesn't have to alter existing systems. No need to overhaul the tools you already rely on.

Question 11

What happens when an employee takes unpaid or extended leave?

Accepted Answer

If an employee takes unpaid or extended leave and doesn’t have enough salary to cover deductions, alternative payment arrangements may be required. Depending on the novation agreement, they may need to pay the financier directly until they return to work and payroll deductions resume. Payroll deductions may also be temporarily suspended or adjusted during this period.

Question 12

What happens if an employee leaves the business?

Accepted Answer

When an employee leaves your business, the novation agreement generally ends (or “de-novates”) and responsibility for the underlying lease returns to the employee. They may be able to transfer the lease to a new employer, continue making payments personally or pay out the remaining balance. Your business’s obligations generally end once the novation has been finalised in accordance with the agreement.

Question 13

How can our business set up a novated leasing program?

Accepted Answer

Getting started is simple. To set up a novated leasing program, your business agrees to facilitate salary deductions (if you haven’t already), signs a three-way novation agreement and sets up payroll to deduct repayments from the participating employee’s salary. Reach out to Fido Finance and we’ll give your business an employer agreement, step-by-step payroll instructions and simple onboarding guides you can share directly with your staff.

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