What "novated" means when you change jobs
The word "novated" refers to novation — the legal transfer of a contract's obligations from one party to another. In a novated lease, your employer holds the lease obligation on your behalf. When you leave that employer, the novation ends and the lease obligation reverts to you personally.
This is not a crisis. It simply means you need to decide what to do next. You have three paths: transfer the lease to your new employer, continue making payments personally during a transition period, or exit the lease entirely by paying it out. Each has different financial implications, and most situations are resolved smoothly with a little advance planning.
Option 1: Transfer to your new employer (re-novation)
If your new employer participates in salary packaging, you can re-novate the lease — transferring the obligation from your old employer to your new one. This is the cleanest outcome. The tax benefit continues without interruption, and your fortnightly deduction appears in your new payslip from your start date.
The re-novation process typically works as follows:
- Notify your novated lease provider that you are changing employers as early as possible — ideally before your final day at the old job
- Confirm your new employer participates in salary packaging (ask HR or payroll on day one)
- Your provider contacts your new employer's payroll team to arrange the novation agreement
- Paperwork is signed by all three parties; your new employer begins making deductions from your salary
Re-novation can take 1–4 weeks depending on your provider's turnaround and your new employer's payroll cycle. During this gap, you may need to make personal payments (see Option 2 below). Most providers handle this routinely and many employees experience seamless transitions.
Option 2: Personal payments during a gap
If there is a gap between leaving your old employer and starting at a new one — or while re-novation paperwork is being processed — you must make the lease payments yourself. These personal payments come from your after-tax income, which means you temporarily lose the income tax benefit during this period.
The amount you pay personally is the same as the fortnightly lease deduction that previously came from your salary. The difference is that you are now paying from take-home pay rather than pre-tax salary. For most employees, this gap is a few weeks at most, and the total cost of paying personally for a short period is modest relative to the full lease term's benefit.
Most providers allow a period of personal payments without triggering any penalty or early termination fees. Confirm this with your provider and ask for clarity on: how many consecutive fortnights of personal payment are allowed before they flag a default, and whether any additional documentation is required.
Option 3: Exit the lease (pay-out)
If you are moving to an employer who does not offer salary packaging — or if you simply want to end the lease — you can pay out the remaining liability. The payout amount is the present value of all remaining lease payments plus the residual (balloon) amount, calculated at the lease's interest rate.
Paying out a lease early typically involves a break cost if you are on a fixed interest rate, which compensates the finance company for the interest income they lose. The break cost depends on how much of the lease remains and current interest rate conditions. In a rising rate environment, break costs are usually smaller (or zero). In a falling rate environment, they can be significant.
Once the lease is paid out, you legally own the vehicle. You can keep it, sell it, or trade it in. If the car's market value exceeds the payout figure, you keep the surplus equity.
What happens to the running cost budget?
When the novation ends, your provider will reconcile your running cost budget. If there is a surplus — money that was collected but not yet spent on running costs — this is typically returned to you. If there is a deficit — bills that were paid out but not yet covered by your contributions — you will be invoiced for the shortfall.
Running cost reconciliations at job change are usually straightforward. Keep your final payslips and the provider's budget statements to cross-check the reconciliation. Most providers process this within 2–4 weeks of the lease being de-novated from your old employer.
What about the FBT obligation?
Your old employer is only liable for FBT on the days the car was provided to you as an employee fringe benefit. From your last day of employment, the car is no longer a fringe benefit — it is either being paid for personally or has been handed over. Your employer's FBT liability stops at that point.
If you are re-novated to a new employer within the same FBT year (1 April to 31 March), the new employer assumes the FBT obligation from your start date. The ATO's guidance is clear that FBT is calculated pro-rata based on the number of days the benefit was provided by each employer. In most practical cases, this is handled automatically by your provider and both employers' payroll systems.
How to protect yourself before signing a novated lease
The best time to think about job change risk is before you sign. Ask your provider these questions upfront:
- What is the early termination / break cost if I need to exit before the end of the lease term?
- How many fortnights of personal payments are allowed before you consider the lease in default?
- What is the re-novation process and how long does it take?
- Are there any fees for changing the employer on the novation agreement?
Also factor your own employment risk into your lease term choice. If you are in a stable long-term role, a 5-year lease may be fine. If you are in a contract position, working in a restructuring organisation, or considering a career change, a 3-year lease gives you more flexibility. The shorter the lease, the smaller the remaining liability if you need to exit early.