Australia · 2025–26 ATO rates
Independent · No email required · EV FBT exemption applied automatically
Guides & resources
A novated lease is a three-party salary packaging arrangement between you, your employer, and a finance company. Your employer deducts your car repayments directly from your pre-tax salary — before income tax is calculated — which reduces your taxable income and delivers a meaningful tax saving every year you hold the lease.
Unlike a traditional car loan, a novated lease bundles the finance payments with running costs — fuel or charging, insurance, registration, servicing, and tyres — all into a single pre-tax salary deduction. This means you pay for your car and its running costs from income that has not yet been taxed, amplifying the benefit significantly over the life of the lease.
The word "novated" refers to the novation agreement: your employer steps into the lease contract on your behalf. If you change jobs, the lease transfers to your new employer — or you can make repayments personally until you find a new employer that participates in salary packaging.
The mechanics are straightforward. Suppose you earn $95,000 per year and salary sacrifice $21,800 toward a novated lease covering finance plus all running costs on a mid-range EV. Your taxable income drops from $95,000 to $73,200. At a 34.5% marginal tax rate, that $21,800 reduction saves you approximately $7,520 in income tax per year — the government effectively covers 34.5 cents of every dollar you put into the lease.
On top of the income tax saving, your employer claims the GST credit on the vehicle purchase, since they are the legal buyer in the transaction. That GST — equal to 1/11th of the car's purchase price — flows back to you through a lower overall lease cost. On a $65,000 vehicle, that is a $5,909 one-off saving in year one, stacked on top of the annual income tax saving.
For most employees, salary packaging a car normally triggers a Fringe Benefits Tax (FBT) liability. FBT is calculated at 47% on 20% of the vehicle's value — a significant cost that historically needed to be offset by post-tax contributions from the employee using the Employee Contribution Method (ECM). On a $62,000 car, those post-tax ECM contributions amount to roughly $12,400 per year.
In 2022, the Australian Government introduced the Treasury Laws Amendment (Electric Car Discount) Act, which exempts battery electric vehicles (BEVs) and hydrogen fuel cell vehicles from FBT entirely — provided the vehicle costs less than the luxury car tax threshold ($91,387 for 2025–26). For employees who choose an eligible EV, the entire lease sacrifice comes from pre-tax income with no post-tax contribution required. This is why EVs on novated leases can deliver $10,000–$15,000 or more per year in combined savings, while petrol equivalents typically deliver $4,000–$8,000.
Note that plug-in hybrid vehicles (PHEVs) lost their FBT exemption from 1 April 2025. Only full battery electric vehicles (BEVs) and hydrogen fuel cell vehicles continue to qualify. The calculator applies this automatically when you select vehicle type.
Any Australian employee whose employer participates in salary packaging can access a novated lease. This includes employees of private companies, government departments, universities, hospitals, and not-for-profit organisations. The main requirement is that you must be a PAYG (Pay As You Go) income tax employee — the tax saving comes from reducing your taxable wage income, which is not available to sole traders or company directors paying themselves via dividends.
If your employer does not currently offer salary packaging, many payroll companies can set it up at no cost to the employer. It is worth asking your HR or payroll team — refusals are uncommon among medium and large employers, as there is no direct cost to them and it is a valued benefit for employees.
The higher your marginal tax rate, the more you benefit. Employees earning between $45,001 and $135,000 are taxed at 34.5% on the next dollar (32.5% + 2% Medicare Levy), so they keep 34.5 cents of every sacrificed dollar. Employees earning above $135,000 are taxed at 39% on income in the $135,001–$190,000 range, making the benefit even greater.
This novated lease calculator uses ATO 2025–26 income tax rates, the statutory FBT formula (20% of car base value, grossed up at the Type 2 rate of 1.8868, assessed at 47% FBT rate), and ATO minimum residual values by lease term. The EV FBT exemption is applied automatically for eligible battery electric vehicles under the $91,387 luxury car tax threshold. Unlike calculators from novated lease providers, this tool is completely independent — we are not affiliated with any leasing company and have no incentive to steer you toward any particular product or provider.