Novated Lease Australia
Salary Package Your Car & Save Thousands

What Is a Novated Lease?

A novated lease is a salary packaging arrangement that allows Australian employees to pay for a vehicle and its running costs using their pre-tax salary. It is a three-way agreement between you (the employee), your employer, and a finance company. The word “novation” refers to the legal process of transferring the lease obligation from you to your employer for the duration of your employment.

Under this arrangement, your employer deducts the total lease cost — including the vehicle finance repayment and budgeted running costs — directly from your gross salary before tax is calculated. This means you pay for your car with dollars that have not yet been taxed, effectively reducing your taxable income and delivering real savings every pay cycle.

Novated leases have been a popular salary packaging benefit in Australia for decades, and they became even more attractive in July 2022 when the federal government introduced a full Fringe Benefits Tax (FBT) exemption for eligible electric vehicles. This change made novated leasing the single most cost-effective way to acquire and run an EV in Australia, with potential savings of $8,000 to $15,000 or more per year depending on the vehicle and your income.

How Does a Novated Lease Save You Money?

Novated leases deliver savings through three primary mechanisms, each of which reduces the effective cost of owning and running your vehicle compared to buying a car outright with after-tax income.

1. Income Tax Savings

Because the lease payments and running costs are deducted from your pre-tax salary, your taxable income is reduced. The higher your marginal tax rate, the more you save. For example, if you earn $120,000 per year and your novated lease deductions total $15,000, your taxable income drops to $105,000. At the 37% marginal rate (plus 2% Medicare levy), that is an income tax saving of approximately $5,850 per year.

2. GST Savings

When you buy a car normally as an individual, you pay the full GST (10%) on the purchase price. With a novated lease, the finance company claims the GST credit on the vehicle purchase and passes the saving to you through lower lease payments. This applies to both the purchase price and all running costs arranged through the lease. On a $50,000 vehicle, the GST saving on the purchase price alone is approximately $4,545 over the life of the lease.

3. FBT Exemption for Electric Vehicles

Since 1 July 2022, eligible zero and low-emission vehicles (battery electric vehicles, plug-in hybrids, and hydrogen fuel cell vehicles) with a value at or below the fuel-efficient luxury car tax threshold ($91,387 for 2024-25) are fully exempt from Fringe Benefits Tax when salary packaged through a novated lease. This eliminates the need for post-tax employee contributions that are typically required on conventional vehicles to offset FBT, dramatically increasing the net savings.

Who Can Get a Novated Lease?

Novated leases are available to PAYG employees whose employer agrees to offer salary packaging. You do not need to be a permanent full-time employee — many employers extend novated leasing to part-time and fixed-term contract staff as well. The key requirements are:

• PAYG employment — you must receive a regular salary from an employer (sole traders and contractors paid on invoices are not eligible)
• Employer participation — your employer must agree to set up the salary packaging arrangement and make deductions from your pay
• Credit approval — the finance company will assess your ability to service the lease based on your income, employment history, and credit profile
• Vehicle eligibility — new or used vehicles are eligible, though used cars typically need to be under 5 years old at lease commencement

Novated Lease vs Buying Outright vs Car Loan

Understanding how a novated lease compares to other ways of acquiring a vehicle helps you decide which option suits your circumstances. Here is a high-level comparison based on a $50,000 vehicle with a $120,000 salary:

Figures are illustrative only. Actual savings depend on individual circumstances including income, vehicle price, and lease term.

What Vehicles Can Be Novated Leased?

You can novated lease virtually any passenger vehicle in Australia — there is no restriction on make or model. This includes sedans, SUVs, utes, hatchbacks, and even some light commercial vehicles used for personal transport. Both new and used vehicles are eligible, though used vehicles typically need to meet age requirements set by the finance provider (usually under 5 years old at lease start).

For electric vehicles seeking the FBT exemption, the vehicle must be a battery electric vehicle (BEV), plug-in hybrid electric vehicle (PHEV), or hydrogen fuel cell vehicle, and its value must be at or below the fuel-efficient luxury car tax threshold ($91,387 for 2024-25). Popular choices include the Tesla Model 3 and Model Y, BYD Atto 3, Hyundai Ioniq 5, Kia EV6, and MG ZS EV.

The Novated Lease Process: How to Get Started

Getting a novated lease is straightforward. The process typically takes one to two weeks from initial enquiry to driving your new car. Here is an overview of the steps involved:

Want a detailed walkthrough of each step? Read our complete step-by-step guide.

Understanding Fringe Benefits Tax (FBT)

Fringe Benefits Tax is a tax paid by employers on certain benefits provided to employees, including the private use of a salary-packaged vehicle. For conventional petrol and diesel vehicles, FBT is typically managed through the Employee Contribution Method (ECM), where you make post-tax contributions from your salary to offset the FBT liability. This reduces but does not eliminate the overall savings of a novated lease.

For eligible electric vehicles, the FBT exemption means no post-tax contributions are required, and the full lease amount (including all running costs) comes from pre-tax salary. This is why EVs deliver significantly higher savings than conventional vehicles under a novated lease.

Read our complete FBT guide for novated leasing to understand the different valuation methods and how to minimise your FBT.

Novated Leasing for Electric Vehicles

The FBT exemption for electric vehicles has transformed the economics of novated leasing. Before July 2022, the FBT on an EV novated lease worked the same as any other vehicle. Now, eligible EVs are completely exempt from FBT, making salary packaging the most affordable way to drive an electric car in Australia.

Combined with lower running costs (electricity is cheaper than petrol, and EVs require less maintenance), an EV novated lease can save you $8,000 to $15,000+ per year compared to buying the same vehicle with after-tax income. The savings are even greater when you factor in the GST saving on the purchase price and the bundled running costs.

Explore our EV salary packaging guide for eligible vehicles, savings comparisons, and popular EV choices.

For Employers: Novated Leasing as a Staff Benefit

Offering novated leasing is one of the simplest and most effective ways to enhance your employee value proposition at zero cost to your business. The salary packaging arrangement is cost-neutral to the employer (the deductions come from the employee’s salary), and administration is minimal once the initial setup is complete.

Novated leasing helps attract and retain talent, particularly in competitive industries where salary packaging is expected. It is especially valued by employees looking to salary package an electric vehicle under the FBT exemption.

Read our employer guide to novated leasing for setup instructions, compliance obligations, and how to partner with us.

End of Lease Options

When your novated lease term ends, you have several options depending on your circumstances and preferences:

• Pay the residual and own the car — the residual value (also called the balloon payment) is set at the start of the lease based on ATO guidelines. Pay this amount and the car is yours outright.
• Refinance the residual — if you do not want to pay the residual in a lump sum, you can refinance it into a new loan or lease.
• Start a new novated lease — trade in or sell your current vehicle and start a fresh novated lease on a new car, continuing the tax savings.
• Return the vehicle — in some arrangements, you may be able to return the vehicle to the finance company, though this is less common with novated leases than operating leases.

Common Misconceptions About Novated Leases

There are several myths and misunderstandings about novated leasing that can prevent people from taking advantage of this valuable salary packaging benefit. Here are the facts:

• “I do not own the car” — While the finance company holds title during the lease, you have full use of the vehicle and own it outright once you pay the residual at the end of the lease term. It functions similarly to a car loan in this regard.
• “It is only for expensive cars” — Novated leases work for vehicles at any price point. In fact, more affordable vehicles can still deliver meaningful savings through the income tax and GST benefits.
• “I am locked in if I change jobs” — You can transfer the lease to a new employer, take over payments personally, or pay out the lease early. You are not trapped.
• “The employer pays for my car” — The employer does not pay anything. The payments come entirely from your salary. The employer simply facilitates the salary packaging arrangement.
• “It is too complicated” — The setup is straightforward, especially with an experienced broker. Once established, everything runs automatically through your payroll.

Why Use a Broker for Your Novated Lease?

While you can arrange a novated lease directly through a salary packaging provider, using an experienced broker offers several advantages:

• Access to multiple providers — we compare quotes from multiple novated lease providers to ensure you get the most competitive rates and best package inclusions
• Expert guidance — we explain the tax implications, FBT considerations, and help you structure the lease to maximise your savings
• Employer coordination — we handle the communication with your employer and their payroll team, making the process seamless
• Vehicle sourcing — we can negotiate with dealers on your behalf to secure the best purchase price
• Ongoing support — we are here to help throughout the lease term, not just at the start