Novated Lease Australia Guide

Is a novated lease worth it in 2024? 10 pros & cons

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Novated lease pros and cons at a glance

Novated lease pros

  • Vehicle can be used 100% for personal use
  • Potential bulk (fleet) discounts on vehicle purchase price
  • GST saving on car purchase (plus any accessories and add-ons)
  • Use pre-tax salary for the payments
  • Bundle car-running costs into your pre-tax repayments
  • Save GST on car running costs
  • EVs and PHEVs are exempt from fringe benefits tax (massively increasing the savings)
  • Lease a new or used car
  • Lease can be transferred to a new employer if you move job
  • Flexibility at the end of the lease term

Novated lease cons

  • You may need to agree to your employer’s choice of provider
  • Only available to salaried employees
  • Not all employers offer it as a benefit
  • You don’t own the car until the end of the lease
  • Not as flexible for making extra repayments
  • Some novated leases are subject to fringe benefits tax (like most employee perks are) 
  • Some vehicles are not eligible (e.g. non-passenger vehicles)
  • There’s extra complexity if you move job
  • There’s a residual payment to cover at the end of the lease
  • Slightly more complicated than other finance options

Novated lease advantages

1. Vehicle can be used 100% for personal use

The novated lease payments on the vehicle are deducted by your employer from your salary. But that’s where the connection to your employer ends. You can use the vehicle entirely for personal use, with no need to keep a record of how you use it.

Of course, a novated lease can also be an effective way of paying for a car that you use for a combination of work and personal use (business use record keeping may be required if applicable).

2. EVs and PHEVs are exempt from fringe benefits tax

If you choose an eligible electric vehicle (EV) or plug-in hybrid electric vehicle (PHEV) for your novated lease, it will be exempt from fringe benefits tax (FBT).

This makes a novated lease a particularly cost-effective way of paying for a car and can even work out cheaper than buying it outright with cash – see the cost comparison towards the end of this page.

The FBT exemption to EVs and PHEVs with a purchase price below the luxury car tax threshold ($89,332 for the 2023/24 financial year).

Electric vehicle incentives Australia

3. GST saving on car purchase

If you acquire your car through a novated lease, you will save on GST on the purchase price of the vehicle, plus any extras and accessories included in the up-front cost (tow bars, roof racks, window tinting etc.).

The total potential GST discount on a car purchase (including extras) is capped at $6,191 for  the 2023/24 financial year. With private sales there is generally no GST saving as it’s usually not added to the sale price by the seller.

4. Use pre-tax salary for repayments

When it comes time to make the payments for your vehicle, this will be done by your employer using your pre-tax salary. For eligible electric car novated leases, 100% of the cost can be covered with pre-tax salary. For other vehicles it’s generally a combination of pre- and post-tax salary.

Salary sacrificing your car in this way reduces the amount of income you need to pay tax on and can mean savings in the thousands of dollars, depending on the lease repayment amount and your salary.


5. Cover car-running with pre-tax money

You can boost your tax savings further by bundling your car running costs into your lease payments. This includes fuel/charging, servicing, insurance, registration/CTP and tyres. This saves you more money and is convenient as it means you won’t need to separately budget for your car running costs. We will help you work out your running costs when calculating your novated lease.

6. Save GST on car running costs

Any car running costs that are included in your lease will also come with a GST discount, bringing yet more tax savings. Say, for example, you spend $100 per week on fuel. With the GST discount, you would save more than $470 per year on your fuel costs, or around $2,300 over a 5-year novated lease term.

7. You can get a novated lease for a new or used car

You have the flexibility to get a new vehicle or you can get a novated lease for a used car, provided it’s not more than 12 years old at the end of the lease. For a used car, it can be one you buy through a dealer or private sale. You can even novate a car you already own through what’s called a ‘sale and lease back’.

Used car novated lease

8. Potential bulk (fleet) discounts on vehicle purchase price

In many cases, the company providing the novated lease (e.g. Novated Lease Australia) can access discounts on the vehicle purchase price from car dealers. This is because we purchase large numbers of vehicles for our clients and can often get a bulk discount. We may also be able to help you with a discount on vehicle running costs, like fuel expenses which can be covered through your novated lease.

9. Lease can be transferred to a new employer if you move job

Just because your lease was set up through your current employer, it doesn’t mean it needs to stay there. If you move jobs, you can either transfer it to your new employer or de-novate it and continue to make the payments yourself using after-tax money like a regular car loan.

10. Flexibility at the end of the lease term

When the novated lease term comes to an end, you have the option to:

  • Extend the novated lease lease to a new term with the same car by renewing the agreement.
  • Pay out the residual value of the vehicle to own the car outright.
  • Trade in the car and start a new lease with a new car – the sale price of the old car covers the residual on the lease. If the sale price is higher than the residual, you can keep the profit, tax-free. If the residual is higher, you will need to cover the difference.
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Novated lease disadvantages

1. You may need to agree to your employer’s choice of leasing company

Some employers who offer novated leasing have an agreement with a particular leasing company. If that’s the case, you may not have the option of shopping around for a better deal or a provider offering a higher level of customer service.

If you have the option of doing a self-managed novated lease, you can still shop around to compare your finance options.

2. It’s only available to salaried employees

A novated lease is only an option for employees. If you’re self-employed (i.e. not an employee of a company) you won’t be able to pay for a car with a novated lease.

3. Not all employers offer it as a benefit

Novated leasing is becoming increasingly common as a benefit for employees – both in the private sector (SMEs and corporates) and for government employees – but it’s not available from all employers. If your employer doesn’t offer it, you’ll need to either convince them to change their policy, or look at other finance options for your car.

4. You don’t own the car until the end of the lease

Unlike a car loan or buying the car outright with cash savings, with a novated lease you won’t actually own the car until you pay the residual amount (which includes GST) at the end of the lease. You’ll still be able to use the vehicle without restriction, but you generally won’t be able to make any major modifications.

For this reason some of the EV incentives offered by state governments in Australia are not available through a novated lease, as they only apply to the vehicle owner.

5. Not as flexible for making extra repayments

Your repayments and lease term are fixed meaning you won’t have the option to make extra repayments to pay off the car faster and save on interest. If you do decide you want to end the lease prematurely, there are also generally break costs.

6. Some novated leases are subject to fringe benefits tax (FBT)

Unless you buy an eligible EV or PHEV, your novated lease will be subject to fringe benefits tax (FBT). However, there is generally not any FBT to actually pay, either by you or your employer. That’s because with a novated lease, we can reduce the FBT payable by including post-tax contributions towards your lease payments (called the employee contribution method). 

Novated Lease Australia

7. Some vehicles are not eligible

Only passenger vehicles designed to carry a load of less than 1,000kg can be financed with a novated lease. Generally vehicles like motorcycles, caravans and boats are not eligible for the tax advantages available through a novated lease.

8. There’s a bit of extra complexity if you move job

If you change jobs you’ll either need to arrange for your new employer to take on the lease (assuming they offer novated leasing) or start making the lease payments yourself from your own funds (without the generous tax savings). Similar to a standard car loan, there’s a risk of losing the car if your job is unexpectedly terminated and you can’t afford the repayments.

9. There’s a residual payment to cover at the end of the lease

All novated leases come with a residual amount. This is a larger one-off payment you’ll need to make at the end of the lease term to own the car outright. It will be outlined in your lease agreement. GST is payable on the residual amount and you will need to pay it using after-tax funds. Most drivers don’t pay for the residual using their own cash. Instead, they cover it using the trade-in price of the vehicle, and then start a new lease with a different car.

10. Slightly more complicated than other finance options

Overall, the trade off for the tax advantages of a novated lease is that it’s not as straightforward as some of the other ways you can finance a car. That said, your provider will do most of the work for you and explain the process of how a novated lease works in detail.

Is a novated lease worth it?

Yes, for a lot of people a novated lease is very much worth it. In fact, the potential tax savings mean a novated lease can work out to be considerably cheaper than the other options available.

If you choose to novate an eligible EV or PHEV the tax savings are most substantial. That’s because these vehicles are eligible for a fringe benefits tax exemption.

Below is an example cost comparison, based on a Tesla Model 3 RWD that’s eligible for the FBT exemption.

Tesla Model Y Novated Lease Australia

Novated lease cost comparison

Novated leaseBuy outrightCar loan

Vehicle price (Tesla Model 3 RWD)




GST saving on vehicle




Upfront payment required




Weekly cost

$221 (car and running costs)

$76 (running costs only)

$390 (car and running cost)

Tax saving over 5 years (GST & income tax)




Total cost of paying for car & running costs over 5 years

$76,504 (including residual payment)






* Calculation is based on a driver in NSW with an annual gross salary of $120,000 driving 15,000km per year. Running costs include: electricity, comprehensive insurance, registration and CPT, servicing and tyres. Pricing is accurate as of January 2024. For this example, the car loan interest rate is assumed to be 8.00% p.a. with no loan fees. 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 do decide if a novated lease will be worth it for you

Of course, the benefits and savings available through a novated lease will vary based on each individual’s circumstances. Here are some factors to consider…

Generally if you earn a salary and pay income tax, it may be possible to save money through a novated lease. But broadly speaking, people in higher tax brackets save more as their tax bill will be higher to start off with.

The tax savings on a novated lease are significantly bigger on eligible EVs and PHEVs. You can still save tax on non-EVs (or EVs above the luxury car tax limit) but not as much.

There’s no minimum or maximum requirement when it comes to usage of the car, but part of the savings a novated lease offers are based on the car running costs. You’ll generally save more (versus not having a novated lease) if you drive more KMs.

The duration of your novated lease will make a difference to how much it will cost you and what tax savings you’ll enjoy. There’s no better or worse term duration (it comes down to what suits you) but it’s important to discuss this with your novated lease consultant so you understand the implications. Ending a novated lease early can be expensive, so it’s important to get the term right.

This will vary depending on the provider you’re dealing with, but in some cases you’ll miss out on potential further savings if you’re not able to shop around for the best novated lease deal.

While it may be possible to get a novated lease with bad credit in some cases, you may end up with higher costs (this is generally true of other finance options too). If you have serious credit issues (e.g. unpaid defaults) your application for a novated lease may be declined.

Before you go...

If you want to see how much a novated lease could save you based on your circumstances, you can get a free, no-obligation quote from Novated Lease Australia.

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Written by

Bevan Guest - NLA CEO


Bevan Guest

Reviewed by

Sean Callery Editor Novated Lease Australia


Sean Callery
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