Novated lease — frequently asked questions

A novated lease is a three-way arrangement between you, your employer, and a finance company. Your employer makes lease repayments from your pre-tax salary, reducing your taxable income and saving you income tax. The car remains yours — if you change jobs, the lease transfers with you.

Savings vary by salary, car price, and vehicle type. At $95,000 salary with a $62,000 EV, you could save $8,000–$12,000 per year in combined income tax and GST savings. Use our calculator for a personalised estimate based on your exact situation.

Yes. Battery electric vehicles (BEVs) and hydrogen fuel cell vehicles priced below the luxury car tax threshold ($91,387 for 2025–26) are fully exempt from Fringe Benefits Tax when acquired via a novated lease. This means no post-tax ECM contributions are required, maximising your pre-tax savings. Plug-in hybrid vehicles (PHEVs) lost their exemption from 1 April 2025.

ECM is a method where you make post-tax contributions toward your novated lease to offset the FBT your employer would otherwise owe. Every dollar you contribute post-tax reduces the FBT taxable value by the same amount, effectively bringing FBT to zero. For EVs, ECM is not required because FBT is fully exempt.

You can salary-package fuel or charging costs, comprehensive insurance, registration and CTP, servicing and maintenance, tyres, and roadside assistance. These are all paid from your pre-tax salary (or partially post-tax for non-EV vehicles), providing an additional tax benefit on top of the finance payments.

At the end of your lease term, you have three options: pay the residual value (ATO minimum balloon payment) to own the car outright, refinance the residual into a new lease term, or hand the car back. The ATO minimum residual ranges from 65.63% (1-year lease) down to 28.13% (5-year lease) of the original car price.

Yes — your employer must agree to participate in salary packaging. Most medium and large employers already offer this. If your employer does not currently offer novated leasing, you can ask them to set it up with a salary packaging company — many will do so at no cost to the employer.

Yes, used cars are eligible provided the vehicle will be no more than 12 years old at the end of the lease term, is roadworthy, and is not designed to carry more than 8 passengers. Note that the FBT exemption for EVs applies to vehicles first held and used on or after 1 July 2022.

The LCT threshold for fuel-efficient vehicles (including EVs) is $91,387 for 2025–26. EVs priced above this threshold are not eligible for the FBT exemption. For standard vehicles, the LCT threshold is $80,567.

Lenders treat novated lease obligations similarly to other financial commitments when assessing borrowing capacity. However, because a novated lease also reduces your taxable income, the net impact varies. It is worth discussing with your mortgage broker before entering a novated lease if you plan to apply for a home loan soon.

Yes, and the benefits can be significantly greater. Public benevolent institutions (PBIs) and charities have an FBT exemption cap of $15,900 per year, while some hospital and health services have a cap of $9,010. This means a larger portion of your salary can be packaged tax-free.

The FBT rate is 47% (the top marginal income tax rate of 45% plus the 2% Medicare levy). This applies to the taxable value of the car fringe benefit, calculated using the statutory formula as 20% of the car's base value. For most employees, the ECM post-tax contribution fully offsets this FBT liability.

Yes, part-time employees can access a novated lease, provided their employer participates in salary packaging. The savings are generally lower than for full-time employees at the same salary level because the annual sacrifice amount is smaller. However, the FBT exemption for eligible EVs still applies in full, and the GST saving is unaffected by hours worked. If your part-time income is below the tax-free threshold ($18,200 for 2025–26), the income tax saving may be minimal — use our calculator with your exact income to check.

Not through the standard salary sacrifice route. Novated leasing requires a PAYG employment relationship because the tax benefit comes from reducing your taxable wage income before it is paid to you. Contractors and sole traders who are paid gross (without PAYG tax withheld) cannot access this mechanism. However, if you operate through a company structure and take a PAYG salary from that company, the salary portion qualifies — it is the non-salary dividends that do not.

If you leave your employer, the lease is novated back to you personally. You continue making repayments from your own after-tax income until one of three things happens: (1) you join a new employer who participates in salary packaging and the lease is re-novated to them; (2) you pay out the remaining lease liability; or (3) you negotiate an early termination with your provider (which may involve break costs). Most providers allow a period of personal payments during job transitions without penalty, but terms vary — confirm this before signing.

Yes, there is no rule preventing multiple novated leases simultaneously, provided your employer agrees and your salary is sufficient to support the combined sacrifice amount. In practice, most people only lease one vehicle. Note that the FBT exemption for EVs applies per vehicle — each eligible EV lease is independently exempt, up to the $91,387 LCT threshold per vehicle.

Administration fees are charged by the lease provider for managing the salary sacrifice arrangement, running cost budget, and coordination with your employer. They typically range from $300 to $1,200 per year, charged as a separate line item from the finance repayments. These fees are not included in the pre-tax budget — they are usually deducted post-tax, or in some cases pre-tax as an additional sacrifice. Always ask for the full fee schedule before comparing providers, as a $900/year difference in fees costs $2,700 over a 3-year lease.

A chattel mortgage is a business finance product where you own the vehicle outright from day one while using it as security for the loan. It is designed for business use (at least 50% business use required) and gives you GST and depreciation deductions through your business tax return. A novated lease is a personal vehicle arrangement structured through salary sacrifice — no business use requirement, and the tax benefit comes from reducing your PAYG income tax rather than claiming business deductions. For most employees without their own business, a novated lease is the relevant product.

Your comprehensive insurance (which is included in the running cost budget) covers the vehicle's market value or agreed value. In a write-off or theft, the insurer pays out the vehicle's insured value. If the payout exceeds the remaining lease liability (including the residual), the surplus may be returned to you. If the payout is less than the lease liability, you are responsible for the gap — this is why gap insurance (sometimes called "lease gap cover") is worth considering when the vehicle is new and the gap between market value and residual is large.

Your provider maintains a running cost pool funded by your fortnightly salary sacrifice. When bills fall due — rego, insurance, servicing — they pay them from this pool. If you underspend in a year, the surplus typically rolls forward into the next period. If you overspend (for example, a large unscheduled repair), you top up the shortfall from your own pocket. Setting an accurate budget is important: use your actual insurance renewal quote, realistic fuel or charging costs, and a conservative servicing estimate. Your provider will review and adjust the budget annually.

This depends on how super is calculated by your employer. If super is calculated on your "ordinary time earnings" (OTE) — which is the salary before sacrifice — your super contributions are unaffected. If super is calculated on your reduced (post-sacrifice) salary, your super contributions will be slightly lower. The Superannuation Guarantee (SG) rules generally require super to be calculated on OTE, but confirm this with your employer's payroll team. A small reduction in super contributions is generally outweighed by the tax savings from salary sacrifice for most employees.

Minor accessories fitted to the car at point of purchase — floor mats, tow bar, window tinting — can typically be included in the novated lease financing. After-purchase modifications are generally not included in the pre-tax package, though you can pay for them separately. Significant modifications that alter the vehicle's structure or value (lift kits, body modifications) may affect insurance and should be discussed with your provider. At lease end, the vehicle is assessed against its original condition, so modifications that reduce market value or create compliance issues can affect residual calculations.

Yes. The electricity cost of charging your EV at home can be included in your running cost budget as part of the pre-tax salary sacrifice. You cannot include the cost of purchasing and installing a home charger unit itself — that is treated as a home improvement, not a vehicle running cost. The ATO allows electricity consumed to charge the vehicle to be included, based on a reasonable estimate of kWh used. Your provider will typically allow you to set a monthly electricity allocation within the running cost budget. Public charging costs can also be included.