Fully Maintained Novated Lease

A fully maintained novated lease is a car finance arrangement that lets you lease a vehicle through your employer, with all major running costs bundled into one regular payment. The cost is deducted from your pre-tax salary, reducing your taxable income and helping you save on overall costs. In return, you get full use of the car throughout the lease term, with ownership transferring to you at the end. This can be a convenient way to manage your car expenses, with the added benefit of potential tax savings.

What's included in a fully maintained novated lease?

A fully maintained novated lease lets you manage your car and its running costs through one convenient, regular payment, arranged over a term of one to five years. A number of car-related expenses can be included, typically:

• Vehicle registration and CTP insurance
• Comprehensive insurance premiums
• Scheduled servicing and maintenance
• Repairs
• Tyre replacement
• Fuel
• Roadside assistance

However, other costs remain your responsibility and are not typically covered under a fully maintained lease. These include:

• Toll charges 
• Traffic and parking fines or infringement notices
• Accessories fitted after delivery (e.g. roof racks, tow bars, dash cams)
• Hire cars and associated fuel

Benefits of a fully maintained novated lease

• Income tax savings

  Bundling your car’s running costs as part of a salary packaging arrangement means less taxable income. Expenses like fuel, rego, insurance, tyres and servicing are all included pre-tax, reducing your overall income tax liability.

• GST free

  The GST (Goods and Services Tax) on the lease payments and running costs is typically claimable by your employer, which can reduce the overall cost of the lease.

• Fixed payments, no unexpected bills

  All scheduled and unscheduled maintenance is covered in your lease, giving you a predictable monthly payment. That means no surprise bills if your car needs a major service or unexpected repairs.

• Hassle-free service

  If your car needs work, simply book in with an approved service centre and let the lease provider handle the rest. They’ll deal directly with the repairer to ensure fair pricing and save you time, stress and effort.

• Full personal use

  Even though the lease is arranged through your employer, the car is yours to drive as you like – whether it’s for the daily commute, weekend road trips or school drop-offs. There’s no limit on how much or how little you use it.

• Flexibility at the end of the lease term

  You have a range of the options at the end of the lease. You can:

  •   Pay the residual and keep the car

  •   Refinance the residual to extend your lease

  •   Sell or trade in the vehicle to cover the residual and end the lease

  •   Sell or trade in the vehicle to cover the residual and start a new novated lease with another car

Is a fully maintained novated lease worth it?

Whether a fully maintained novated lease is worth it will depend on your circumstances. It can reduce your overall car costs and make budgeting easier, especially if you’re looking for a convenient, all-in-one way to manage vehicle expenses. But how much can you actually save?

While novated leases let you avoid GST and reduce your taxable income by making payments from your pre-tax salary, they are also subject to Fringe Benefits Tax (FBT). Although this tax is officially paid by your employer, the cost is usually passed on to you as part of your lease arrangement.

However, you can reduce or eliminate FBT using the Employee Contribution Method (ECM). With ECM, you agree to pay part or all of the car’s running expenses from your after-tax salary. This amount is still taxed, but at your marginal income tax rate, which is often lower than the FBT rate. By making an after-tax contribution equal to the FBT base value, the FBT is reduced to zero.

To illustrate, here’s how it works for a person with a 30% tax rate purchasing a $40,000 car:

Regardless, a fully maintained lease won’t suit everyone. If you prefer to manage your vehicle expenses independently, a self-managed (non-maintained) novated lease may better fit your needs. Likewise, if you’re not eligible for salary packaging through your employer, you might want to consider taking out a standard car loan.