The Australian novated lease industry has exploded since the FBT exemption on electric vehicles came in. The combination of pre-tax salary sacrifice, the FBT exemption on eligible EVs, and the standard salary packaging structure produced what the industry calls "the perfect storm of consumer demand". SmartGroup, McMillan Shakespeare (through Maxxia and others), LeasePlan, Toyota Fleet, AccessOne and roughly 20 smaller providers wrote record novated lease volume through 2024-2025 and continue to in 2026.
The marketing pitch to employees is straightforward: pre-tax salary sacrifice plus FBT exemption equals a substantial tax saving on the car you wanted anyway. The example calculations on the provider websites typically show a Tesla Model 3 or BYD Atto 3 saving the employee $8,000 to $15,000 in tax over the lease term versus buying the vehicle with after-tax money. The calculations are typically accurate as far as they go.
What the calculations do not show is where the provider made their margin on the same transaction. The structural mark-up sits in three places that the consumer almost never sees itemised on the quote.
Place one: the fleet-to-retail spread
Salary packaging providers acquire vehicles at fleet pricing, which is materially below retail dealer pricing. The fleet discount on a $65,000 retail Tesla Model 3 is typically $4,000 to $8,000; on a $50,000 BYD Atto 3 it is $2,500 to $5,000; on a $90,000 Tesla Model Y Long Range it is $6,000 to $12,000. The provider negotiates the fleet price with the manufacturer or fleet management partner; the consumer is quoted on a price that sits between the fleet acquisition price and the retail dealer price.
The provider does not have to disclose the fleet-to-retail spread because there is no obligation under the relevant consumer credit framework. The quote shows the vehicle price, the lease structure, and the weekly salary sacrifice cost. The spread between what the provider paid for the vehicle and what they are charging you for it is captured by the provider as gross margin.
For a typical $65,000 EV with a $6,000 fleet discount, the provider keeps somewhere between $2,000 and $4,500 of that discount as gross margin on the vehicle alone. The consumer captures the rest as a lower lease cost than they would otherwise face, but they never see the line item.
Place two: the interest rate hidden in the lease
A novated lease is fundamentally a finance arrangement: the provider (or their finance partner) funds the vehicle purchase, the employee pays it back over the lease term through salary sacrifice, and at the end of the lease the residual value gets paid out. The interest rate baked into this structure is rarely disclosed as a single comparison rate.
Typical implied finance rates on novated leases in 2026 are 8 to 11 per cent per annum on the financed portion. That is materially higher than the rate the same employee could borrow at on a secured car loan from a credit union or specialist car finance broker (typically 7 to 9 per cent). The difference is the provider's finance margin.
For a $50,000 financed lease over 4 years at 10 per cent versus a secured car loan at 8 per cent, the additional interest cost over the lease term is roughly $2,800. This is offset against the tax saving, which is real, but the consumer typically does not see the trade-off itemised. They see the weekly salary sacrifice cost and the after-tax saving figure, both of which are correct but neither of which expose the embedded finance margin.
Place three: the residual value game
At the end of a novated lease, the employee has to pay out the residual value to take ownership of the vehicle, or hand the vehicle back. The residual is set at the start of the lease by the provider, typically based on ATO minimum percentages of the vehicle's original cost (the residual percentage falls with lease length).
Two issues with how providers set residuals. First, they typically set residuals at the ATO minimum, which produces the lowest weekly salary sacrifice cost (because the financed amount over the lease term is higher). The lower weekly cost makes the lease quote look attractive. Second, the higher residual at end of lease means a larger balloon payment to take ownership.
For consumers, this is fine if the actual market value of the vehicle at end of lease exceeds the residual; the employee pays the residual, takes ownership, and is ahead. But for EVs specifically, the residual value market is still developing and the providers' residual settings tend to assume slower depreciation than the actual EV market has been delivering. Some 3-year-old EV lease pay-outs in late 2025 and early 2026 saw the consumer paying out a residual at $35,000-40,000 on vehicles whose market value had dropped to $25,000-30,000. The consumer either took ownership at a loss or handed the vehicle back to the provider, who then sold it at the market price.
The honest novated lease comparison
A novated lease can still be a good deal for many employees, particularly for eligible EVs under the FBT exemption. The structural tax benefit is real. The headline cost calculations are usually correct. The pieces above are not arguments against novated leasing per se; they are arguments for understanding the actual cost structure before signing.
The clean comparison test before signing any novated lease quote:
- Get a fleet or near-fleet price quote on the same vehicle through an independent broker, not the salary packaging provider. The gap between this price and the price quoted by the provider is the vehicle margin.
- Get a quote on a standalone secured car loan from a credit union, customer-owned bank, or specialist car finance broker. The interest rate on this quote is the standalone finance rate. The interest rate implied in the novated lease can be calculated against this.
- Compare the total cost of ownership over the lease term (weekly payments times weeks, plus residual pay-out, less tax saving) against the total cost of buying the same vehicle with the standalone car loan and paying tax on the full salary. The difference is the actual benefit of the novated lease structure.
For most eligible EV novated leases under the FBT exemption, this comparison still produces a net benefit in favour of the novated lease structure, even after accounting for the provider margin. The benefit is typically smaller than the marketing example calculations suggest, but it is still positive.
For non-EV novated leases (where the FBT exemption does not apply), the comparison is much closer and frequently breaks against the novated lease structure. The provider margin and embedded finance rate eat into the tax benefit, and many consumers would be better off with a standalone car loan and after-tax salary.
Disclosure: Your Finance Guide partners with Australian Lending and Investment Centre (ALG) ACL 505575 for broker matching. ALG receives commissions from car finance lenders. We have no specific commission relationship with named salary packaging providers. The named providers and the structural cost framework described are based on publicly available information and the standard industry product disclosure statements; readers can verify the structure with their own quote at any time.