{"id":304159,"date":"2026-06-09T12:33:10","date_gmt":"2026-06-09T00:33:10","guid":{"rendered":"https:\/\/www.reckon.com\/au\/?p=304159"},"modified":"2026-06-09T12:33:27","modified_gmt":"2026-06-09T00:33:27","slug":"novated-leases-small-business-guide","status":"publish","type":"post","link":"https:\/\/www.reckon.com\/au\/blog\/novated-leases-small-business-guide\/","title":{"rendered":"Novated Leasing for small businesses"},"content":{"rendered":"

[et_pb_section fb_built=”1″ _builder_version=”4.16″ da_disable_devices=”off|off|off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.23″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_padding=”||0px||false|false” locked=”off” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Intro” _builder_version=”4.27.6″ header_2_font_size=”32px” custom_margin=”||0px|||” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]Part of the challenge of running a small business is finding creative ways to attract and retain great staff. Novated leases are a solid, low-cost solution that can help small businesses provide benefits to new hires<\/a> and retain talent<\/a> without committing extra resources or tedious admin.<\/p>\n

Let\u2019s look into novated leasing and what it can do for your business.<\/p>\n

What is novated leasing?<\/h2>\n

Novated leasing is a car lease agreement among three parties: a financier, an employee, and their employer. The employee leases a new or used car through a finance company and services the repayments through their employer under a salary sacrifice agreement.<\/p>\n

Novation basically means that the employer assumes the employee’s payment obligations, and if employment ends for any reason, those obligations shift back to the employee.<\/p>\n

Think of it like a subscription service, but instead of an individual paying for a service, their boss processes the payments with the employee\u2019s pre-tax wages. The employee receives a benefit that reduces their taxable income, and the employer gives their workers extra options for how they use their salary and wages.<\/p>\n

Novated Leasing: How It Works<\/h2>\n

Novated leasing can be broken down into three components: setup, service, and exit.<\/p>\n

The initial set-up<\/strong>
\nThe setup involves entering the leasing agreement between the three parties and the salary sacrifice agreement between the employee and employer to service the payments.<\/p>\n

The servicing of repayments and fringe benefit tax reporting<\/strong>
\nThere are two servicing responsibilities: firstly, the employer must make ongoing repayments of the novated lease using the employee’s pre-tax salary (funnelled through payroll); and secondly, the employer must meet and report their potential fringe benefit tax obligations<\/a> if the car is used or available for private use.<\/p>\n

Important note:<\/strong> the employee must provide a written agreement and authorisation for the salary sacrifice deductions.<\/p>\n

Exit outcomes<\/strong>
\nThere are five key outcomes to a novated lease agreement.<\/p>\n

    \n
  1. Purchase:<\/strong> The employee pays the residual value and owns the car outright.<\/li>\n
  2. Refinances:<\/strong> The employee extends the lease and continues repayments on a new agreement.<\/li>\n
  3. Sell:<\/strong> To cover the residual, the employee sells the car. If the sale price is above the residual, the employee keeps the difference; if below, the employee pays the difference.<\/li>\n
  4. Upgrade:<\/strong> The employee sells or trades the car and enters a new novated lease for an upgraded model.<\/li>\n
  5. Employee exit:<\/strong> If the employee leaves employment where the novated lease has been arranged, the lease servicing responsibilities shift entirely to the employee. The employer is no longer responsible for the lease.<\/li>\n<\/ol>\n

    [\/et_pb_text][et_pb_text disabled_on=”off|off|off” admin_label=”Scenario” _builder_version=”4.27.6″ _module_preset=”default” text_text_color=”#0a004a” background_color=”#eeecff” custom_margin=”30px||||false|false” custom_padding=”20px|30px|30px|30px|false|false” border_radii=”on|20px|20px|20px|20px” box_shadow_style=”preset2″ locked=”off” global_colors_info=”{}”]<\/p>\n

    Novated lease in action<\/h3>\n

    Marty has a worker, Sharon, who has mentioned needing a new car. Sharon is a great worker, and not having a car to commute to and from work could mean she needs to find employment elsewhere.<\/p>\n

    Marty offers to help by setting up a novated lease agreement with a reputable financier. Sharon agrees:<\/p>\n

    Agreement:<\/h4>\n

    Car: $40,000
    \nLease term: 5 years
    \nResidual (at end of term): 11,252<\/p>\n

    Set-up:<\/h4>\n

    Marty and Sharon create a salary-sacrifice agreement that covers the lease repayments, packaged with ongoing car costs. The financier prepares the lease agreements and related paperwork.<\/p>\n

    Servicing:<\/h4>\n

    Mart\u2019s payroll team deducts the payments from Sharon\u2019s salary and sends it to the financier. Marty records the FBT obligations as Sharon uses the car for private use.<\/p>\n

    Exit outcomes:<\/h4>\n

    After the 5-year lease, Sharon has the option to pay the residual of 11,252 (+ GST) to own the car outright, or refinance the lease\/upgrade\/sell.<\/p>\n

    At any point during the agreement, if Sharon leaves Marty\u2019s employment, Sharon becomes responsible for the repayments.
    \n[\/et_pb_text][et_pb_text _builder_version=”4.27.6″ _module_preset=”default” global_colors_info=”{}”]<\/p>\n

    Things small business owners should consider<\/h2>\n

    Novated leases can offer flexibility and benefits for both employers and their workers. There are some things to consider before signing any agreement:<\/p>\n

      \n
    1. Fringe benefit tax obligations:<\/strong> When your employee uses the car for private use, then employers need to report and calculate the fringe benefit tax<\/a> on the value of the car. It\u2019s worth noting that after-tax contributions can limit your FBT payments and exposure (potentially to 0).<\/li>\n
    2. Salary sacrifice agreement terms:<\/strong> For any salary sacrifice agreement, there must be a detailed written agreement between the employer and the employee. The ATO has strict standards for how to structure a salary sacrifice agreement.<\/a><\/li>\n
    3. Vehicle choice:<\/strong> Normal combustion engine cars (ICE-cars) are subject to FBT, but certain electric cars (EVs) are exempt. Talk with a novated lease company (oly link) to find out more.<\/li>\n<\/ol>\n

      The benefits of novated leasing for small business owners<\/h2>\n

      There are plenty of benefits that come from novated leases. Here are some of the main ones:<\/p>\n