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How a novated lease saves money
A novated lease bundles the car’s finance and running costs into one payment your employer deducts from your pre-tax salary (salary sacrificing). That lowers your taxable income, and your employer can claim back the GST on the car and running costs. For eligible EVs, the fringe benefits tax exemption removes the tax that normally claws back the benefit on petrol cars — which is why EV leases often save thousands over the term even after lease interest.
Is a novated lease always worth it?
No. It works best for people on higher marginal tax rates who drive reasonable kilometres. Low incomes, very low kilometres, or expensive lease interest can erase the benefit — which is why an independent estimate matters more than a lease company’s brochure figure.
What happens at the end of the lease?
You owe a residual (balloon) payment set by ATO guidelines if you want to keep the car, or you can hand it back, sell it, or start a new lease. This calculator notes the residual but compares costs over the term itself.
Novated lease vs car loan vs buying outright
| Novated lease | Car loan | Buy outright |
|---|
| How you pay | Pre-tax salary deductions via your employer | Post-tax repayments from your bank account | Savings, in full, up front |
| Income tax | Lower — the package is salary-sacrificed before tax | No saving | No saving |
| GST | Employer claims GST on the car and running costs, and the saving is passed to you | You pay full GST | You pay full GST |
| Running costs | Bundled into one budgeted payment (fuel or charging, insurance, rego, servicing, tyres) | Paid separately, as they fall due | Paid separately, as they fall due |
| Fringe benefits tax | Applies to petrol cars (usually offset by post-tax contributions); eligible EVs are exempt | Not applicable | Not applicable |
| At the end | A residual (balloon) payment set by ATO guidelines if you keep the car | You own the car once the loan ends | You already own it |
Worked example: an EV novated lease
Consider an employee on a $120,000 salary packaging a $65,000 eligible battery EV over four years, driving 15,000 km a year. Because the package is paid from pre-tax salary, roughly $18,000–$22,000 a year of gross pay is redirected into the lease and running costs, cutting taxable income by the same amount. At a 37% marginal rate plus Medicare, that redirection alone is worth several thousand dollars a year, the employer passes back the GST on the car price, and — unlike a petrol car — no fringe benefits tax claws the benefit back, because the EV is FBT-exempt. Run this exact scenario in the novated lease calculator above to see the modelled saving against a 9% car loan; your quote will differ by provider interest rate and fees, which is precisely why an independent estimate matters before you sign.
How to set up a novated lease, step by step
- Confirm your employer allows salary packaging and which lease providers they work with — not every employer does.
- Choose the car and get written quotes from at least two providers, including the interest rate, fees and residual.
- Model it independently with this calculator, using your real salary and kilometres — be suspicious of savings quoted on a higher salary than yours.
- Sign the novation agreement — a three-way contract between you, your employer and the lease company.
- Budget the residual from day one. The end-of-lease balloon payment is not optional if you keep the car.
What happens to my novated lease if I change jobs?
The lease itself is in your name, so it travels with you — but the tax benefit depends on an employer deducting payments pre-tax. If your new employer agrees to take over the novation, the arrangement continues. If not, you keep paying the lease from post-tax income (the car is still yours to use) until the term ends or you refinance. Ask about this before changing jobs mid-lease.
Who should not take a novated lease?
It usually disappoints if your income is in a low tax bracket (there is little tax to save), you drive very few kilometres (running-cost budgets exceed what you would spend), or the lease interest rate is well above car-loan rates. It can also complicate things if you expect to leave the workforce or move overseas during the term. The comparison above shows the loan alternative honestly for exactly these cases.
Sources: Australian Taxation Office (ATO) — fringe benefits tax and the electric car exemption. Independent estimate only, not financial advice — get written quotes before signing.