LeaseAudit

How to Set Up a Novated Lease in Your Payroll

Your employer's role is simple: add a pre-tax deduction. That's it. Here's exactly how, for every major payroll platform.

What Your Employer Needs to Know

Payroll Platform Setup Guides

Select your payroll platform for step-by-step instructions.

Xero Setup

~15 minutes
  1. 1Go to Payroll Settings > Pay Items > Deductions
  2. 2Click Add Deduction — set type to Other/None
  3. 3Name the deduction (e.g. 'Novated Lease — [Employee Name]')
  4. 4Tick 'Reduces PAYG Withholding' so it's treated as pre-tax
  5. 5Save and assign it to the employee's pay template
  6. 6Enter the total monthly deduction amount (finance + running costs combined)
  7. 7Set as recurring — it will apply automatically each pay run
  8. 8For RFBA reporting: enter the figure supplied by the lease provider in STP finalisation at year end
FBT / STP Reporting

In Xero's STP settings for the employee, add the Reportable Fringe Benefits Amount (RFBA) provided by the lease company. This flows through to the employee's income statement automatically.

Xero Help: Set up an employee novated lease→

Exact steps vary by payroll version and configuration. Always cross-check with the deduction schedule supplied by your lease provider and confirm RFBA reporting with your accountant.

Template Email to Your Employer

Copy and customise this email to start the conversation with your employer or HR team.

Hi [Manager/HR Contact],

I'd like to set up a novated lease for an electric vehicle through salary packaging. This is a standard salary sacrifice arrangement — here's a quick summary of what's involved from the company's side:

• Zero financial risk — the business is a payroll conduit only, with no liability for the lease
• Setup is simple: one recurring pre-tax deduction in payroll (~15 minutes)
• If I were to leave, the lease transfers with me — no ongoing obligation for the company
• For eligible electric vehicles, there's no Fringe Benefits Tax cost
• The lease provider handles all onboarding and will walk the bookkeeper through setup

The lease provider I'm working with is [Provider Name]. They'll contact payroll directly to provide the deduction amounts and walk through the setup process.

Could I arrange for them to be in touch? Happy to discuss any questions.

Thanks,
[Your Name]

Replace the bracketed placeholders with your details before sending.

Employer FAQ

Last reviewed: May 2026