Novated Lease Guide: Is It Worth It?

Novated leasing confuses a lot of people. The sales pitches make it sound like free money. The reality is more nuanced. It genuinely saves thousands for some people and barely breaks even for others. Here's how to figure out which camp you're in.

How It Works (Simple Version)

1. You pick a car.
2. A lease company buys it.
3. Your employer deducts the lease payment + running costs from your salary BEFORE tax.
4. Because it's pre-tax, you pay less income tax.
5. At the end of the lease (typically 3-5 years), you pay a residual to own the car outright, refinance, or start a new lease.

The key insight: if you're in the 37% tax bracket, every $1 of car costs paid through the lease only costs you $0.63 out of pocket. The other $0.37 comes from tax you would have paid anyway.

The EV Game-Changer

Since July 2022, eligible EVs and PHEVs are exempt from Fringe Benefits Tax on a novated lease. This is massive. FBT is normally 47% of the car's value, which is the biggest cost of a novated lease for petrol cars. Remove it, and the savings roughly double.

Figures are illustrative estimates and will vary based on individual circumstances, lease terms, and running costs. This is general information, not financial advice. Consult a financial adviser for your specific situation.

Who Benefits Most?

• $80k-120k salary + EV: Sweet spot. High enough tax bracket for meaningful savings, and the FBT exemption makes it a no-brainer.
• $120k+ salary + EV: Even better. 45% marginal rate means the tax savings are maximised.
• $80k+ salary + petrol car: Still saves money, but less dramatically. FBT eats into the benefit.
• Under $60k salary: Minimal benefit. Lower tax bracket means smaller savings. A regular car loan might be simpler.

The Costs Nobody Mentions

• Management fee: The lease company charges $500-1,200/year to administer the lease. This eats into your savings.
• Interest rate: Novated lease interest rates are typically 5-8%. Compare to manufacturer finance at 0-3%.
• Residual payment: At the end of the lease, you owe a lump sum (typically 30-40% of the car's original value). You need cash to pay this, or you refinance.
• Exit penalties: Leaving the lease early can cost you. Check the early termination clause before signing.

How to Get the Best Deal

1. Get quotes from 3 providers. Maxxia, SG Fleet, Salary Packaging Australia, LeasePlan. Compare the total cost, not just the monthly deduction.
2. Negotiate the car price separately. Don't let the lease company buy the car for you at full RRP. Negotiate the price yourself first, then bring the quote to the lease company.
3. Choose the shortest lease you can afford. 3 years is better than 5. Less interest paid, lower residual risk.
4. Include all running costs. Fuel/electricity, insurance, rego, servicing, tyres. The more you bundle in, the more comes from pre-tax dollars.

Check our complete list of FBT exempt cars to see which EVs qualify, or compare running costs on CarSorted.

This article provides general information about novated leasing. It is not financial advice. Tax laws and FBT rules change. Always consult a qualified financial adviser or accountant before making financial decisions.