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.