Vehicles purchased under novated leases

Under a novated lease arrangement, you (the employer) take over all or part of the lessee's rights and obligations under the lease. This transfer of rights and obligations is agreed to in a deed of novation between you, the finance company and the lessee. The lessee is usually the employee, or an associate of the employee.

The deed of novation usually contains a clause that transfers the lease obligations back to the lessee on termination of the lease or when the employee ceases employment with you. In the latter case, this enables the employee to enter into a new novated lease arrangement with another employer.

There are two main types of novation arrangement:


Every lease agreement can be different depending on the clauses they contain. For more detailed information about novated lease arrangements, refer to TR 1999/15External Link Income tax and fringe benefits tax: taxation consequences of certain motor vehicle lease novation arrangements.

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Full or split full novation

You need to understand:

How the arrangement works

Under a full or split full arrangement, the following applies:

  • your employee enters into a lease with a finance company
  • you enter into a deed of novation (tripartite agreement) with your employee and the finance company.

Under the deed of novation, you may agree with your employee and the finance company to take on all, or some, of the employee's rights and obligations in the original lease agreement.

Full novation arrangement

Under a full novation arrangement, you are responsible for making the lease payments and guaranteeing the residual value of the vehicle at the end of the lease.

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GST definitions – payments

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Split full novation arrangement

Under a split full novation arrangement, you are responsible for making the lease payments but you are not responsible for guaranteeing the residual value of the vehicle at the end of the lease. Your employee retains this obligation.


Under a deed of novation that involves a revocation of the original lease, the supply of the vehicle is made directly by the finance company to you, even if your employee retains the obligation to guarantee the residual value.

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Accounting for GST

Finance company

Under a full or split full novation arrangement the finance company can claim a GST credit for the GST they paid on the purchase of the vehicle.

When the finance company leases the vehicle to you, the finance company is generally liable to pay GST to us on that lease.


When you lease the vehicle from the finance company, you can claim a GST credit for the GST included in the lease charges if the vehicle is being leased to you in the course of carrying on your business. However, as a general rule, you cannot claim GST credits if you make input taxed sales.

A fringe benefit may arise where you are the lessee of a vehicle that is provided by you for the private use of the employee or associate of the employee.

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Your employee

There are no GST consequences for your employee because your employee has not purchased or leased the vehicle. Although they have the use of the vehicle, it is part of their remuneration.


Associate arrangements vary from case to case. We recommend that you request a private ruling if you need more information.

Tax invoice requirements

If you enter into a deed of novation, for GST purposes, you are the purchaser of the vehicle from the finance company. In this case, your employee is not considered to be acting in the capacity of an agent on your behalf.

If this lease to you is taxable, the finance company must provide you (not your employee) with a tax invoice, if requested. To be a valid tax invoice, it will need to include certain information, which includes enough information to enable your identity or Australian business number (ABN) (as the recipient) to be clearly identified.

We can treat a fully novated lease agreement (in the form of a tripartite agreement) as a tax invoice, provided it satisfies the information requirements for tax invoices.

We may treat a tax invoice held by you (but issued to the employee) as a tax invoice issued to the recipient of the sale. Such discretion would ordinarily be exercised in cases where we believe there would be large compliance costs imposed on entities to reissue such documents to you.

The Commissioner has also made a determination to waive the requirement for an employer to hold a tax invoice for a creditable acquisition of a vehicle under a novation arrangement before an input tax credit is attributable to a tax period in particular circumstances. Refer to WTI 2013/10External Link A New Tax System (Goods and Services Tax) Waiver of Tax Invoice Requirement (Acquisitions of a Motor Vehicle under a Full or Split Full Novated Lease Arrangement) Legislative Instrument 2013, which has a date of effect of 1 July 2010.

Where the arrangement does not involve the legal assumption of your employee's obligations under the lease and is merely a reimbursement or payment by you on behalf of your employee, you may be entitled to claim GST credits. The reimbursement is treated as payment for a purchase that you have made on behalf of your employee and you may claim GST credits even where you hold a tax invoice issued to your employee.

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    Last modified: 09 Aug 2016QC 16604