Your guide to novated leasing

The basics of novated leasing

How does a novated lease work?

With a novated lease, you choose what car you want to drive and then part of your salary is used to lease it. Depending on the type of car, either all or a portion of the novated lease payment to be made from pre-tax income, which means you save on tax.

The regular payment covers the cost to lease the vehicle and can also include running costs like fuel or charging, maintenance, tyres, rego and insurance.

How do I save money with a novated lease?

The potential savings with a novated lease primarily come down to income tax and GST savings.

For starters, novated leasing allows you to use your pre-tax income to pay for your car and running costs, helping you reduce the tax you pay on your salary.

Then there’s the fact that when leasing a car, GST (typically 10%) is not payable upfront on the purchase price of the vehicle. This means you can save thousands on any car when leasing.

For example, leasing a Tesla Model 3 RWD that costs $59,814 would result in an up-front GST discount of $5,155 on the vehicle purchase price. If the same car were purchased with cash or a car loan, GST would be included in the purchase cost, making it more expensive.

There is also a GST saving on any salary sacrificed running costs included as part of the pre-tax portion of the lease payment.

There are extra savings if you lease an electric car versus a petrol or diesel car, which we cover below.

How long will my novated lease last?

Novated lease terms are generally between six months and five years and you will be able to choose a term that suits your situation best. The longer the term, the lower the regular payments, as the cost is spread across more repayments. Most people go with a term of three to five years.

With Novated Lease Australia, you can choose an ‘odd term’ meaning it doesn’t need to be an even year. For example, for whatever reason you may decide that a 30-month lease suits your situation.

If I get a novated lease, who owns the car?

The finance company owns the car during the novated lease term. That being said, you have complete control over which car you choose to lease. The lease company simply buys it on your behalf (with a GST discount).

Throughout the lease, the car is registered in your name and you have full personal use of it. You also insure the vehicle and look after servicing, just like you would if you bought the car yourself.

The only difference is you can pay for these expenses through your regular lease payment, while enjoying an income tax and GST saving.

After making the residual payment at the end of the lease term, you will own it outright. You'll also have the option to extend the lease, or trade in the car and start a new lease with a newer model.

What is a self-managed novated lease?

A self-managed novated lease gives you the same benefits as a standard novated lease, but with more freedom and flexibility in finding your finance provider at the start of the process.

Rather than being limited to your employer’s nominated salary packaging provider, you can shop around for the best deal, vehicle pricing, and support that suits your needs.

Once you’ve secured your preferred arrangement, your employer can still manage the payroll deductions through their existing provider, keeping everything compliant and seamless.

In contrast, when everything is arranged through your employer’s preferred partner, it’s known as a fully-maintained novated lease. While convenient, this can sometimes limit your choice of finance options and providers.

With a self-managed novated lease, you’re in control, choosing who you work with to source your finance, helping you compare the market for the most competitive rate. The right finance deal can make a big difference to your overall lease cost and how much you pay for your car over time.

Will I need to pay fringe benefits tax on my novated lease?

Novated leases on electric vehicles are exempt from fringe benefits tax, if the vehicle is valued below the luxury car tax threshold for fuel-efficient vehicles ($91,387 in FY25/26).

For all other vehicles that are subject to FBT, the novated lease will be set up to include some post-tax salary contributions to cancel out any FBT liability that your employer would otherwise be subject to (where it applies, FBT falls to the employer, not the employee to pay).

Deciding if it’s right for you

Can I get a novated lease if I’m not on a very high income?

Yes you can. As long as you pay tax, there is still generally a tax benefit, no matter what your income is. And that's just the income tax. There's also the GST which comes off the purchase price of the car, plus the GST savings on the running expenses as well.

Do I need to be driving a lot of kilometres to benefit from a novated lease?

No, we have customers that drive as little as 5,000 kms per year and lower. These people still choose to pay for their car through a novated lease to take advantage of the GST and tax savings.

What are the disadvantages of a novated lease?

A novated lease can be more complex than other types of car finance because it involves multiple parties and moving parts. If not managed carefully, unnecessary extras can increase your overall costs.

That’s why it’s crucial to choose a reputable novated lease provider that’s transparent about all costs and takes the time to clearly explain each step of the process.

It’s also worth considering your future employment situation before entering into a novated lease. If you change or leave your employer, your lease will need to move with you and you’ll still be responsible for making the lease repayments, potentially through your new employer if they offer novated leasing.

Is getting a novated lease worth it?

Whether a novated lease is worth it depends on your personal and financial circumstances. It can offer significant tax and convenience benefits, particularly for those in higher tax brackets or those looking to bundle vehicle costs into one simple payment. However, it's crucial to consider the total cost over the lease term and any potential end-of-lease obligations.

Can anyone drive my car?

Yes, anyone can drive your car. Just make sure they’re covered by your car insurance policy.

Types of cars you can novate

What kind of vehicle can I novate?

Novated leasing is available for new or used passenger vehicles, including virtually all cars, SUVs and utes. You can’t novate non-passenger vehicles like motorcycles, scooters, caravans or boats.

The vehicle’s carrying capacity must be less than one tonne in order for it to be eligible, which rules out a lot of commercial vehicles.

How old can a second-hand car be if I want to get a novated lease?

Can I get a novated lease for a car I already own?

Yes, this is relatively common. Most people want to get a new car, but there are some people who have recently purchased a car and then became aware of novated leasing and want to get the benefits.

It's a simple process. Essentially, the finance company buys the car from you and you lease it back from them (known as ‘sale and lease back’). The only difference is you miss out on the GST benefit on the purchase price, but the income tax savings will be the same. Plus, you still get the GST savings on your car running expenses.

Can I novate more than one car?

Yes, you can. As long as you are able to afford the payments to service the finance, you can do multiple novated leases.

How do I choose which car to novate?

Once you're up to speed on the ins and outs of novated leasing its benefits it’s time to choose the right car.

A good starting point is to consider what kind of car you’d drive even if you weren’t doing a novated lease. You can do a novated lease on pretty much any car, but ultimately it needs to fit your situation, lifestyle and budget. A novated lease is simply a way to finance the car you want, with some tax savings thrown in.

That being said, there are a couple of extra points to consider when it comes to car choice and novated leasing.

Should I lease an electric car?

EVs are increasingly popular in Australia, with plenty of drivers seeing the benefits of driving a car that’s quieter, comfortable to drive and costs a lot less to fill up without having to go to a petrol station and pay high fuel prices.

Of course, the fringe benefits tax exemption on novated lease on eligible EVs also also been a big driver of increased EV uptake. With this incentive, EV drivers can pay for 100% of the cost of their EV and most running costs using pre-tax salary. With a novated lease non-EV generally only part of your payment is made pre-tax.

To be eligible for an EV novated lease, the vehicle must be valued below the luxury car tax threshold for fuel-efficient vehicles ($91,387 in FY256/267).

Paying for your car running costs

What car running costs can I include in my novated lease?

How we explain it to clients is that you can package pretty much any cost of maintaining the vehicle and keeping it on the road. These are the main costs that can be included:

Are there any running costs I can’t include?

Your novated lease can't include costs that are not related to maintaining the vehicle and keeping it on the road. That means the likes of tolls, parking costs or fines cannot be included.

How are the car running expenses calculated?

We estimate your running costs at the start of the lease based on how much you think you’ll drive per year. But we can change those running costs at any time throughout the term.

If you're overspending compared to the budget, we readjust those figures to cover the extra kilometres. If you overestimate, we can dial the expenses back to bring the payments down.

But in that scenario, most people leave the extra paid as a buffer in the account in case something comes up.

At the end of the term, we refund any remaining account balance back to the employer to pay to you as taxable salary.

If I include running costs, can I pick my own insurance provider?

Yes, absolutely. Novated Lease Australia can help you source insurance, but customers are free to find their own policy and there is no extra charge if you decide to do that.

You set up the policy as you normally would and we include the cost in the lease budget and reimburse you so you're still getting the tax benefit.

If you pay the insurance premium monthly, we'll reimburse monthly. If it’s annual, we'll reimburse the annual amount from your account once there are sufficient funds available.

Either way, you’ll need to send us a copy of your policy documents as confirmation that your vehicle is insured, as that is a condition of the novated lease.

What happens to the money for my running costs if I don’t use it all?

The money is yours, so whatever funds are left over at the end of the lease will be returned to you via your payroll (with income tax payable).

What to expect at the end of the lease

What will I need to do when the lease ends?

It’s pretty straightforward. We send you a payout letter from the lender explaining how much the residual value of the vehicle is. This is the amount required as a final payment for you to own the car outright.

What people most commonly do at that point is sell the car and use the sale funds to pay out the residual amount and keep any profit tax free. Then they start again with a new lease on a new car.

The other options are to pay the residual and keep the car, or re-lease the vehicle for another 12, 24 or 36-month term.

Can I pay extra towards my residual value during the lease?

In a word, no. This is because the minimum residual amount that must be paid in order for you to own the car at the end of the lease is set by the ATO. Paying extra during the term would bring the residual below the ATO’s minimum.

Likewise, you are not allowed to put any remaining funds in your novated lease account towards the residual at the end of the lease. You must pay the residual (including GST) with after-tax money.

Do you own a car at the end of a novated lease?

You don’t automatically own the vehicle at the end of a novated lease. You have the option to:

How is my car’s residual value calculated?

Residual values are determined by the ATO and vary according to the term of the lease. Our quote shows you all the details you need to know including your residual value.