Novated Lease vs buying outright

If you’re buying a new or used car and you have enough cash available, conventional wisdom would suggest that buying the car outright will save you money.

But the unique tax advantages that a novated lease offers Australian drivers means this is one situation where cash is not always king, particularly if you drive an EV.

In this guide we’ll explain how a novated lease works, how it differs from buying a car with cash, and how it (almost unbelievably) could save you more than $13,000 on the cost of a Tesla Model Y versus paying cash.

Novated lease vs buying outright: basics compared

Let’s start by looking at the basics of how each option works:

Novated lease:

A novated lease gives you unrestricted use of a new or used car of your choice, with the payments coming directly from your salary with a tax saving. The payments cover both the car itself and running costs, meaning you get a tax discount on both. The agreement involves you, your employer and a novated lease provider.

Buying outright:

This simply means you cover the entire purchase price of the car using your own cash with no finance. There is no third-party involvement.

Novated lease vs buying outright: detailed breakdown

	Novated lease	Buying car outright
Ownership	You can use the car for 100% for personal use with the option to own it at the end of the lease by making the residual payment.	You own the car from the start.
Up-front discount	No GST payable on the vehicle purchase price. That’s a saving of up to $6,353 in FY 26/27. Novated lease providers can often secure a further bulk-purchasing discount with certain dealers.	No standard up-front discount.
Vehicle options	Can be used for any new or used passenger vehicle with a maximum payload of 1,000kg, which is pretty much every new car in Australia. Used cars must be less than 12 years old at the end of the lease.	No restrictions.
Regular payments	Made directly from your salary each time you are paid. This lowers your taxable income and tax bill.	No regular payments required.
Vehicle running costs	Also covered by your novated lease payment, meaning you save more in tax. You also enjoy a GST discount on these costs.	All running costs must be paid for separately.
EV incentives	Further tax discount (through a novated lease fringe benefits tax exemption), plus any standard incentives you’re eligible for.	Limited state based government incentives may be available.
Usage restrictions	None	None

Novated lease vs buying outright costs compared

	Novated lease	Buy outright with cash
Vehicle price (Tesla Model Y RWD)	$64,014	$64,014
GST saving on vehicle	-$5,518	$0
Income and tax deductions
Annual income	$100,000	$100,000
Annual novated lease costs including running costs (pre-tax)	$11,225	$0
Annual tax saving (income tax & GST)	$6,958	$0
After tax costs
Annual after-tax car running cost	$0	$4,200
The outcome
Net cost of novated lease (reduction to your take-home pay over 5 years)	$56,160	N/A
Residual payment	$16,501	N/A
Total cost of paying for car & running costs over 5 years	$72,661	$85,854
Cost difference		+$13,193
*Calculation is based on a 2026 Tesla Model Y RWD Premium (in white) financed over five years with a novated lease and paid for outright using cash. The example assumes a driver in NSW, driving 10,000km per year. Running costs include electricity, comprehensive car insurance, registration and CTP, servicing and tyres. This is an example for illustrative purposes only based on the assumptions described. Your cost and savings may be different depending on your situation.

How could a novated lease work out cheaper than using cash to buy a car?

The cost difference between a novated lease and buying a car outright with cash really boils down to tax. With a novated lease, you have the potential to significantly reduce your tax bill in a way that you can’t if you buy your car using cash savings.

Your savings will be even greater if you're comparing a novated lease to a car loan.

The tax savings are considerable no matter what kind of car you novate, but they are amplified if you’re novating an eligible electric vehicle (EV). This is because these leases are eligible for a further tax discount due to a fringe benefits tax exemption that was introduced in 2022 to encourage Australians to drive EVs.

To be eligible, the vehicle must be valued below the luxury car tax threshold, which is $91,661 for fuel-efficient vehicles in FY 26/27.

With the FBT exemption, every single dollar you spend on your car through a novated lease comes from your pre-tax salary.

View a f ull list of EVs vehicles that are eligible for the FBT exemption.

Of course, if you’re novating a non-EV, all of the other tax benefits still apply, including:

Pre-tax payments

At least part of your novated lease payments are taken out of your income before tax is deducted. This will reduce your tax bill. Whereas buying outright means a massive outlay of money up front for a depreciating asset.

GST saving

Unlike buying a car outright, with a novated lease you save on GST on the up-front cost of the vehicle. You’ll also pay less GST on fuel, servicing, insurance, tyres, registration and any other consumables for your car you package with you lease.

All running costs included

One of the unique benefits of a novated lease is the option to include all the running costs of the vehicle in your lease repayments. This is a further saving you don’t get if you are buying the car outright.

If you're buying an EV, you can include charging costs, but generally not the cost of installing a home charger. You may be able access separate government incentives for EV owners to help with that.

Pros and cons of novated leasing and buying outright

Novated lease pros

Vehicle finance largely through pre-tax salary.
GST discount on the up-front cost of the car.
GST discount on eligible running costs.
Convenient way to package bundle car costs - including fuel, insurance, servicing, repairs, roadside assist and registration.

Novated lease cons

An employer must agree to salary package the vehicle for an employee.
Fully maintained lease only available through a novated leasing company.
There’s a residual payment due at the end of the lease.
Vehicle must be a passenger vehicle and cannot exceed a maximum payload of 1,000 kg.