ato logo

Why we look at novated leases

Last updated 8 June 2021

A novated lease is a three-way agreement between an employer, employee and a novated lease provider where the employer takes on the obligation for repayments under the lease and a corresponding deduction is made from the employee salary. Although the vehicle is privately owned by the employee it is treated as if it were a company car.

The novated lease data-matching program will allow us to identify and address a number of taxation risks, including:

  • motor vehicle expense claims – if an employee with a car provided through a novated lease arrangement incorrectly claims car related deductions
  • correct claiming of goods and services tax (GST) credits – the employer claims GST credits for paying the GST on the purchase of the vehicle
  • fringe benefits tax (FBT) compliance – a car provided by novated lease is considered a fringe benefit to an employee and gives rise to an FBT liability for the employer. This liability can be reduced if the employee is making post-tax contributions.