16 May 2024

Novated Lease maternity leave and unpaid leave - What you need to know

Novated Leasing is a cost-effective method of financing a new or used car and reducing your taxable income.

It's a form of salary sacrificing (also known as salary packaging) - a three-way arrangement between you, your employer and a Novated Leasing provider (such as FleetPartners).

There’s no initial deposit or finance loan required.

The vehicle finance and budgeted running costs are bundled together and spread across the lease term. A sizeable portion of the lease payment is deducted from your pre-tax salary every pay cycle, which ultimately reduces your income tax.

If it's a new vehicle, you'll also realise thousands of dollars in GST savings up front on the purchase price.

What Happens To My Novated Lease If On Maternity Leave Or Unpaid Leave?

Fortunately, there are a range of options available to you that should provide peace of mind and flexibility. These will vary depending on your situation, but your employer and your Novated Lease provider can guide you through the process.
Let's explore some of the most commonly asked questions.

Can i continue my Novated Lease arrangement while on maternity leave?

If your employer is still paying you into your nominated bank account while you are on leave, then there is no effect on your lease arrangement.
The same applies if you are receiving any parental leave entitlements that are paid by the government via payroll.

What about unpaid leave? What are the financial implications of having a Novated Lease during maternity leave?

This depends on your personal circumstances, but in general, if you go on unpaid leave for any reason (including maternity or paternity leave), your employer ceases making payments into your Novated Lease account and you will need to continue paying the finance rental and running costs yourself.
Once you return to paid work, your Novated Lease deductions can recommence as deductions from your salary made by your employer and you can again access the tax savings.

Can my employer assist me with my Novated Lease during maternity leave?

Either your employer or FleetPartners can help by discussing your options with you. If you have a confirmed return-to-work date, then one potential option is to pre-plan the Novated Lease payments for your vehicle, in order to ‘buffer’ or ‘compensate’ for the leave period.
In other words, you can choose to make increased payments in the lead-up, prior to going on leave, in order to cover for the period that you won't be working.

Are there any special provisions for Novated Leases during maternity leave?

Potentially. Everyone's individual situation is different.
Reach out to your employer and/or your Novated Lease provider with any questions you have. The more notice you can give before going on leave, the better. But, the important thing is to communicate your queries and concerns.

Should I consider ending my Novated Lease before maternity leave?

This is also certainly an option.
Terminating your Novated Lease early is an alternative to continuing to make direct regular payments to the financier while you are on maternity leave. This would mean making a lump sum payment (the residual value, any remaining lease payments and associated fees) prior to going on leave, and thereby taking full ownership of the vehicle.

Is it possible to pause my Novated Lease during maternity leave?

Not exactly.
A Novated Lease has two components - the finance and anticipated running costs. FleetPartners can cancel the running costs budget, however this still means that you are obligated to pay the finance component. In this scenario, you would not have any salary deductions made via your employer, so you would instead make payments directly to the financier.
And if you are planning on using the vehicle while on leave, then you'll also be paying the running costs out of your pocket as you go (including the costs of getting the car serviced, comprehensive insurance, roadside assistance etc).
If and when you return to work, we are then able to re-activate the lease and reinstate the management and salary deductions.

How does a Novated Lease work for part-time or reduced hours after maternity leave?

If your employer allows you to have a Novated Lease based on a part-time or reduced hours arrangement, then your Novated Lease will not be affected. In this scenario, the required lease deductions simply continue as they were with your full-time arrangement.
The only time that an issue would occur is if the deductions required are higher than what you are being paid, in which case other options would need to be canvassed.

Does leaving my job affect my credit score due to a Novated Lease?

As long as the finance repayments are being made to the financier, then there should be no impact to your credit score.

Final Words On Taking Unpaid Leave When On A Novated Lease

The tax benefits of Novated Leasing are undeniable. The advent of electric vehicles (EVs) has made Novated Leasing even more attractive because the savings for an EV are more significant.
This is due to the federal government introducing a full fringe benefits tax (FBT) exemption for EVs (for vehicles that fall below the luxury car tax threshold of $89,332).
It is understandable to have questions or concerns about what happens during maternity leave, but it's important to remember that we are here to help.
Considerations around Novated Lease and vehicle running cost budgets are no different from managing any other component of your household budget (eg. mortgage, groceries etc) and there are always options.