Risks and exit strategies

Novated leases are usually discussed in terms of tax savings, interest rates, and take-home pay.

What is discussed far less — and often glossed over in marketing material — is risk.

A novated lease is not just a way to finance a car. It is a multi-year contractual arrangement that ties together your employment, tax position, and a depreciating asset. When everything goes to plan, particularly for FBT-exempt EVs, the outcome can be very favourable.

When things don’t go to plan, the downside can be sudden and asymmetric.

Common risk scenarios include:

• job loss or redundancy,
• changing employers who do not support novated leasing,
• unpaid or extended leave,
• vehicle write-off where insurance does not fully cover the payout,
• policy changes (e.g. if the EV FBT exemption is discontinued).

In these situations, the same lease that looked attractive on a fortnightly cashflow basis can turn into a large post-tax lump-sum obligation, often without the tax benefits that justified the arrangement in the first place.

This section focuses on:

• how lease length and residuals affect risk,
• why early termination is disproportionately expensive and some ways to mitigate it,
• how bad outcomes can get with worked examples, and
• why "positive expected value" doesn't mean everyone should take the bet

This section is not an exhaustive list of all caveats of novated lease; other potential caveats are discussed in "Is a novated lease right for me" article.

If earlier sections ask “Is a novated lease cheaper?”, this section asks another important question:

“What happens if circumstances change — and am I comfortable with that risk?”

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I'm backing Dr Michael Keane's fight for salary packaging transparency

Workplaces with an exclusive salary packaging provider tend to have noticeably higher effective interest rates on novated leases — yet the commercial terms behind these exclusive arrangements are rarely disclosed to employees.

Dr Michael Keane, a Melbourne anaesthetist, is taking a Victorian health service to the Victorian Supreme Court to obtain the unredacted contract between the hospital and its exclusive salary packaging provider. The unredacted version may shed light on alleged sign-on fees associated with exclusive access to hospital employees — an arrangement whose financial terms employees are rarely privy to.

To date, Dr Keane has personally spent around $15,700 pursuing this case, with further legal costs anticipated. I believe this matters to anyone in a workplace with an exclusive provider. If you agree, consider supporting his GoFundMe.