Is a novated lease worth it?

For most salaried employees, especially those considering an EV (which attracts zero FBT under the current exemption), a novated lease can save thousands per year compared to financing a car privately.

What is the FBT exemption for EVs?

Battery electric vehicles and hydrogen fuel cell vehicles under the Luxury Car Tax threshold are fully exempt from Fringe Benefits Tax when financed through a novated lease, making them significantly cheaper to run.

What happens at the end of a novated lease?

At lease end you can pay the residual value to own the car outright, trade it in, refinance the residual into a new lease, or return the vehicle to the financier.

What is a Novated Lease? Plain-English Guide

Q: What is a novated lease?

A novated lease is a three-party arrangement between you, your employer and a finance provider that lets you pay for a car using pre-tax salary, reducing your taxable income.

The Three-Party Arrangement

A novated lease is a contract between you, your employer, and a finance company.

You (Employee)

Choose your car, select your lease term, and enjoy the savings each pay cycle.

Pre-tax salary
deduction

Your Employer

Makes lease payments on your behalf from your gross salary — at no cost to them.

Finance Company

Owns the vehicle and receives lease payments. At lease end, you can buy, trade, or re-lease.

The "novation" in novated lease refers to the transfer of your lease obligation to your employer for the duration of your employment. If you change jobs, the lease can move with you — your new employer simply takes over the arrangement, or you can manage payments directly until a new novation is set up.

Save More with Salary Sacrifice

Reduce your taxable income and keep more of what you earn.

With a novated lease, your lease repayments and vehicle running costs are bundled into a single fortnightly or monthly deduction from your pre-tax salary. Because the deduction happens before income tax is calculated, your taxable income shrinks — meaning you pay less tax and receive more take-home pay without any reduction to your lifestyle.

What's typically bundled in

Lease Repayments Fuel / Charging Car Insurance Registration (Rego) Servicing & Maintenance Tyres & Roadside

Illustrative Example — $90,000 salary

Gross salary $90,000

Pre-tax lease & running costs − $12,000

Taxable income $78,000

Estimated annual tax saving ~$3,900 +

Example only. Actual savings depend on your income, vehicle choice, and tax rate. Use our calculator for a personalised estimate.

Fringe Benefits Tax & the EV Exemption

Understand FBT — and how EVs can eliminate it entirely.

Because your employer is paying for your vehicle as part of your salary package, the ATO normally treats this as a fringe benefit — a non-cash perk provided in lieu of wages. Fringe Benefits Tax (FBT) is the tax your employer is required to pay on these benefits.

On a conventional novated lease, FBT is calculated on the vehicle's value and is typically offset by making a portion of the lease payments from your post-tax salary (known as an employee contribution), effectively eliminating the FBT liability.

Zero FBT on Eligible EVs & PHEVs

Since 1 July 2022, the Australian Government introduced an FBT exemption for eligible battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) provided under a novated lease arrangement. This means you can potentially lease a qualifying EV completely FBT-free — saving thousands over the life of the lease compared to a petrol vehicle.

Eligible vehicles

✓ Battery electric vehicles (BEV)
✓ Plug-in hybrids (PHEV) — transitional*
✓ Must be under the LCT threshold

Key conditions

✓ Provided through an employer
✓ First held & used from 1 July 2022
✓ Primarily for private use is fine

* PHEV exemption ended for new arrangements from 1 April 2025. Existing arrangements may be grandfathered — confirm with your provider.

ATO Official Guidance — Car Leasing and FBT

The Australian Taxation Office publishes detailed guidance on how FBT applies to novated leases, including the statutory formula method, the operating cost method, and the current FBT exemption for eligible electric vehicles.

Read ATO Guidance on Car Leasing & FBT

Customised Leasing That Fits You

Flexibility across vehicle type, term, and residual value.

Unlike a traditional car loan, a novated lease is highly configurable. You choose the vehicle (new or used), the lease term (typically 1–5 years), and your estimated annual kilometres — which together determine your fortnightly payment and the vehicle's residual value at the end.

Any car

New, demo, or used. EV, PHEV, hybrid, or petrol. Any make or model up to the LCT threshold.

1–5 years

Choose your own lease term to match your budget and how long you like to keep a car.

No deposit

No large upfront payment required. Get into a new car sooner without draining your savings.

What happens at the end of the lease?

1

Buy the car

Pay the agreed residual value and own the vehicle outright.

2

Re-lease a new car

Trade in and start a fresh lease on the latest model.

3

Return the vehicle

Hand the car back (if your lease includes this option).

Is a Novated Lease Right for You?

A novated lease works best in certain situations.

It tends to work well when you…

✓ Are a PAYG employee (not self-employed)
✓ Pay tax at 32.5% or higher marginal rate
✓ Drive regularly (higher km = greater savings)
✓ Want an EV and maximum FBT savings
✓ Prefer a single, predictable car payment

Things to keep in mind…

→ Employer must support salary packaging
→ Changing jobs may require restructuring
→ Residual value must be paid at lease end
→ Lower-income earners save less in tax
→ Early exit may incur break costs

This page is for general information only and does not constitute financial advice. We recommend speaking with a qualified financial adviser or your novated lease provider for advice tailored to your circumstances. See the ATO's guidance on car leasing and FBT for official tax information.