How can you save money with a novated lease in Australia?

    A novated lease is the best way an Australian can purchase and maintain a car. There are significant GST savings on the purchase price as well as large income tax savings. With a novated lease the payments largely come from your pre-tax salary, saving you thousands of dollars in tax.

    Below, we explain in more detail what a novated lease is, how to compare novated lease options, and how to understand the pros and cons of a novated lease.

    What is a novated lease?

    A novated lease is a type of car finance that involves your employer in your car purchase. Each time you get paid, part of your pre-tax salary will be paid to the car finance company to make your repayment. This can help you save on income tax.

    A novated lease can also cover a lot of the ongoing costs of running a car, including petrol, insurance, and servicing. This results in further savings.

    Many employers offer a novated lease in salary packaging deals. A novated lease can be used to finance a new or a used car, as long as it will be less than 12 years old at the end of the lease.

    How does a novated car lease work?

    With a novated lease, before your salary is paid to you, your employer deducts part of it and pays it to the finance company you’re leasing the car from. This sum covers the monthly lease cost itself (including interest charged) and sometimes includes operating costs like fuel, insurance, and maintenance.

    The leasing company typically charges an admin fee for providing the service, and this is also covered by the amount deducted from your salary.

    If you leave your job, the novated lease is still your responsibility. You can either continue to make the payments on it yourself like a regular lease, or ask your new employer to take up the novated car lease arrangement.

    Novated lease savings example

    Based on an individual with $80,000 annual income

    To help illustrate the potential benefits of a novated lease, we wanted to go through an example. Suppose Steve is an IT worker making $80,000 per year and he is looking to buy a Toyota Camry Ascent. Without a novated lease, he is paying tax on all $80,000 of his earnings. After paying income tax and making a large post-tax contribution, he is left with a net income of $46,857.

    Now consider what happens if he gets the vehicle through a novated lease. He’s able to make a substantial pre-tax deduction, which noticeably reduces his taxable income. He pays a smaller income tax and a smaller post-tax contribution, arriving at a net income of $50,051. This simple change has saved him $3,194 which can go towards his expenses or savings.

    What are the types of novated leases?

    There are two main options offered by novated lease companies.

    • Fully maintained novated leases

      cover the base car payment as well as ongoing costs such as registration, fuel, insurance, and servicing.

    • Non-maintained novated leases

      only cover the base car payment and don’t include any other ongoing expenses related to the vehicle.

    What are the features of novated lease?

    Many people aren’t clear on the finer points of a novated lease and what makes this arrangement uniquely beneficial. To make an informed novated lease comparison, you have to know what actually goes into one. These are some quick points to remember about novated vehicle leases:

    • Competitive interest rates. Rates typically range between 5% and 7.5%, and usually go no higher than 10%.

    • Additional car savings. Petrol, insurance costs, repairs, and even roadside assistance can also be paid from your pre-tax salary under a novated car lease.

    • Variable lease term length. You can choose the length of the lease, generally between one and five years.

    • Maintenance options. A fully maintained lease lets your provider take care of the maintenance costs, while a non maintained lease means you are responsible.

    • New and used choices. You can apply a novated lease toward a used car—they are not restricted to new cars only.

    • Job transferability. If you get a new job, the vehicle lease stays with you and you can then seek a novated lease with your new employer.

    Ready for the Next Step in Novated Leasing?

    For a comprehensive range of novated lease options and expert guidance, visit our partner, Novated Lease Australia. Their specialized services complement our insights, offering you a broader perspective and tailored solutions for your leasing needs.

    Click below to find the ideal novated lease for you, and start saving more today.

    Visit Novated Lease Australia

    What happens at the end of a novated lease?

    One of the best novated lease benefits is the flexibility you have when the lease term runs out. There are several options you can choose from based on your financial situation and your transportation needs.

    • Lease renewal/refinance. You could take out a new lease based on the residual (current market) value of the vehicle, and keep driving the same car.

    • Vehicle upgrade You could trade in the current leased vehicle and take out a new car lease instead.

    • Buy the car You could pay the remaining residual value so that you become the car owner, but this payment would need to be made with post-tax funds. Once you’re the owner, you could choose to sell the vehicle to cover the residual payment cost.

    What are some novated lease benefits?

    Understanding novated lease pros and cons will help you determine if this setup is a good fit for your circumstances. Here are some extra advantages of this type of car finance:

    • No payable GST: The leasing company can claim back the Goods and Services Tax (GST) they paid when purchasing the new vehicle, meaning you’re paying a pre-GST price on the car.
    • Fuel savings: Novated lease companies will sometimes include a fuel card as part of the package, which saves you money on petrol.
    • Lower taxable income: Since the car lease is paid out of your pre-tax income, the amount of income tax you owe will go down.
    • Flexible car use: With a novated vehicle lease, you get to use your employer-subsidised car for personal purposes.

    What are some novated lease disadvantages?

    Novated lease companies have a lot to offer, but you might still be asking: is a novated lease worth it? These are some potential drawbacks to consider ahead of time:

    • Costs: Similar to other types of car finance, there are fees and interest costs.
    • You don’t own the vehicle: For the duration of the novated lease, the lease company owns the vehicle, not you.
    • There’s usually a residual payment: If you do want to own the car outright, you typically need to make a large one-off payment (sometimes called a balloon payment) at the end of the lease term.
    • You’re responsible for the lease: It’s typically you and not your employer who is ultimately responsible for the lease, meaning if you change or lose your job, you will still be liable to make the lease payments.

    How can I get a novated lease for an electric car?

    As part of the national movement towards green energy, many incentives for purchasing electric cars have been created. These are primarily in the form of discounts and even exemptions from the Fringe Benefit Tax. If an electric vehicle is valued below $84,916 (the luxury car tax threshold), it has a payable FBT of $0 in most cases. The exemption applies specifically to electric business vehicles being used for personal needs. This can result in substantial savings for employers who are providing vehicles to their employees. Battery EVs, hydrogen fuel cell EVs, and plug-in hybrid EVs with an externally chargeable battery are all eligible for these exemptions.

    For instance, many people have gotten a novated lease on a Tesla Model Y. The exemption also applies for second-hand cars as long as their first retail sale was on 1 July 2022 or later. Based on this rule, you could get a novated lease for a Tesla 3 if you favor one of the more affordable Teslas.

    Which is better, a novated lease or a car loan?

    A novated car lease and a car loan are similar in some ways but also have several major differences. Having a clear grasp of the distinctions is important before you lock into any financial commitments.


    Novated lease
    • Can help you save on tax expenses for the year
    • Additional freedom at the end of the lease term
    • Operating costs like repairs and fuel are bundled
    Car loan
    • Ownership of the car stays only with you
    • No limits on car upgrades or distance driven
    • Car can be sold at any time at your discretion


    Novated lease
    • Tied to your work, so it’s harder to change jobs
    • Usually has lease admin fees and finance costs
    • Modifications and upgrades greatly restricted
    Car loan
    • Generally higher payment expenses overall
    • Full responsibility for fuel and maintenance
    • Money tied up in a depreciating asset long-term

    Novated lease FAQ

    Do I actually own the car if I have a novated lease?
    No, you are not the owner of the car. However, this can be to your advantage. If you owned the car yourself, you would lose the tax breaks associated with a novated lease. Once the lease runs out, you can choose to buy the car outright.
    How much money can you save with a novated vehicle lease?
    Working for a company that facilitates novated leases for employees can save you a lot of money. To start, you can avoid the 10% Goods and Services Tax on the vehicle purchase price. You can save additional costs on fuel and maintenance if you have a fully maintained lease.
    What is included in the running costs of a car?
    With a fully maintained novated lease, the amount your employer deducts from your pre-tax salary can cover the car finance payments plus interest and fees. These funds can also go towards car running costs such as fuel, car registration, servicing, insurance, roadside assistance, or tyres.
    What is a residual value for a novated vehicle lease?
    Since the car incurs mileage as well as wear and tear throughout the lease term, it is worth less at the end of the lease. The residual value is the asset value that remains after your lease has run out, and is estimated when you first take out the novated lease. This is the amount you’ll have to pay at the end of the lease if you want to own the car outright.
    Do I need a deposit to get a novated lease?
    No, a deposit is not necessary to obtain a novated vehicle lease. You simply start making payments on the car via your pre-tax income from your employer.

    Final lessons for getting the best novated lease

    A novated lease can be a great way to cut costs by working with your employer to pay for your vehicle. However, finding the best novated lease company can be challenging, and it’s not always clear what a novated lease offers you that you can’t get with a traditional car loan.

    Learning about novated lease pros and cons, along with a general understanding of how these leases work, is a great step towards figuring out whether they are right for you.