Which Employees Can Benefit From a Novated Lease?
Employers often ask us things like "who can actually benefit from novated leasing? I thought you needed a high earner with an expensive car and lots of usage?"
They'd be right 10 years ago, before tax changes like the employee contribution method. The good news is that novated leasing has evolved, and today it’s a practical, cost-saving benefit for almost all employees.
Here’s what you need to know about which employees can benefit and the key requirements.
It’s Not Just for High Earners Anymore
There’s a common misconception that novated leasing only benefits employees on six-figure salaries driving luxury cars. This outdated idea stems from older tax rules and assumptions that no longer apply.
The Reality Today:
- Once an employee is earning $40,000 or more, a novated lease will start to help them notably increase their take-home pay.
- The Employee Contribution Method (ECM) brings a lot more equality - even mid-level earners benefit.
- Employees don’t need to drive excessive kilometers to make the lease cost-effective.
Key Requirements for Employees
Minimum Income:
Employees earning a gross salary of $40,000 or more can benefit from novated leasing. Lower-income earners still see savings, but $40,000+ is where the tax benefits really become increasingly obvious.
Employment Type:
- Full-time, part-time, or long-term contract employees are very simple to setup novated leasing for.
- Employers may set specific policies, but generally - most roles with regular income can qualify.
Car Choice:
- Employees don’t need to opt for expensive or luxury cars. In fact, we see that reliable, value-first vehicles, especially incentivised EVs and hybrids, are the most common choices.
- Leasing packages can be tailored to fit personal budgets.
Usage:
- Modern FBT rules mean the savings are consistent regardless of kilometers driven. Employees driving fewer kilometers still enjoy the same rate of savings.
3. How Savings Work Across Different Income Levels
For Mid-Level Earners ($40,000–$70,000):
- ECM offsets fringe benefits tax (FBT), making leasing accessible.
- Savings come from bundled running costs like fuel, insurance, and maintenance.
For Higher Earners ($80,000+):
- Tax savings are more pronounced due to the higher taxable income offset.
- Employees may opt for higher-end vehicles without losing cost-efficiency.
An Accessible Modernisation:
A Clear Lease novated leasing partnership is an inclusive benefit that resonates with employees at all income levels, being accessible for most employees, not just the select few. It enhances your employee value proposition, boosts satisfaction, and comes at no direct cost to your business beyond basic payroll administration.
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Related Questions:
Self-employed individuals can access novated leasing if they pay themselves a salary through a business structure like a company or trust. For sole traders, a shift to a company structure, or alternative leasing options will be better suited.
FBT is a tax (with a rate at 47%) applied to fringe benefits (incentives beyond salary/wages received from an employer). A non-electric car under a novated lease is a fringe benefit (electric cars are completely FBT exempt in Australia).
The employer is responsible for paying the FBT, but at Clear Lease - we use the employee contribution method (contributing post-tax funds) to offset any FBT to zero.
This works because we can tax deduct any expenses incurred in the arrangement and maintenance of a vehicle as a fringe benefit. We work out the right mix of pre-tax and post-tax payments the employee needs to make to make sure the FBT liability is negligible for the employer.