Novated leasing questions, answered

It is a way to pay for a car and its running costs out of your pre-tax salary, through an agreement between you, your employer and a leasing company. Because the payments come out before tax, and the leasing company claims the GST back, you can save a meaningful amount compared with buying the car with after-tax money.

Two ways for any car: the payments lower your taxable income, and GST is stripped out of both the car price and the running costs. For an eligible electric vehicle under the luxury car tax threshold, there is a third and bigger saving on top, the FBT exemption, which makes the whole package pre-tax.

Yes. Your employer has to agree to route the payments from your pre-tax salary, which is what makes it a novated lease rather than a normal car loan. Most employers can set this up through a salary-packaging provider, and it costs them nothing.

It depends on your tax rate, the car, how much you drive, and crucially the real finance rate on the quote. It stacks up best on a higher tax rate, on an eligible EV, when you drive enough to use the running-cost budget, and when the effective rate is fair rather than buried above 15%. The honest way to know is to check the real numbers for your situation.

Most quotes show a flat or headline rate, then capitalise fees and broker commission into the amount financed. The effective (reducing-balance) rate, measured the way a mortgage or car loan is, is almost always higher. We have seen quotes where a 9.9% headline was really about 11.2%, and small cars come out much higher again.

It is the drive-away price of the car minus the GST the leasing company claims back, and it is the figure your interest is charged on. It is not the FBT base value, which is a different number used to work out fringe benefits tax. Mixing the two up is the most common mistake in rate calculations.

The residual is a lump sum owing at the end of the lease, set by an ATO-mandated minimum percentage based on the term (28.13% for a 5-year lease). It keeps your repayments lower during the lease. At the end you pay it out, refinance it, or sell the car and settle it.

Fees are mostly fixed dollar amounts, so on a small loan they are a big proportion and the effective rate looks high. A $20,000 EV can show close to 19% while a $70,000 car shows 9% on the same terms. A high percentage on a small loan can still be a small number of dollars, so judge it on the actual dollars, not the headline rate.

Typically fuel or charging, servicing and maintenance, tyres, comprehensive insurance, and registration and CTP. These are budgeted estimates set by the provider, not fixed charges, and unused amounts are usually reconciled or refunded at the end of the lease.

Through the ATO rate, currently 5.47 cents per kilometre. For most drivers that comfortably covers home charging, so an EV running-cost budget built on that figure is rarely the problem on a quote.

Compare each line to reality: the capped-price servicing for that exact model, the real fuel consumption for the variant, and sensible insurance for the car and driver. A budget set too high ties up your money, one set too low makes the car look cheaper to run than it is. When you upload a quote we check these automatically and flag anything that looks off.

Eligible EVs under the luxury car tax threshold are exempt from fringe benefits tax, so the entire package, finance and running costs, comes out of pre-tax salary. That is a much bigger saving than the GST and income-tax benefits alone, which is why an EV lease can beat a loan or cash by a wide margin.

There is an exposure draft, not yet law, that would wind it back in steps. Full exemption continues to 1 April 2027. From then to 2029, the full exemption applies only to EVs up to $75,000, with a 25% FBT discount for pricier eligible EVs. From 2029 all eligible EVs move to the 25% discount. If your EV is under $75,000, nothing changes until 2029.

Yes, an eligible used EV under the threshold can still qualify for the FBT exemption as long as it meets the conditions, so a used EV can also be very cheap to novate.

The car and the finance are yours, not your employer’s. If your new employer offers salary packaging, you novate the lease to them and it continues pre-tax. If not, you keep the car and pay the finance directly, losing the tax benefit for that period but not the car itself.

The same as changing jobs: the car stays with you and the finance continues. The pre-tax running-cost budget stops, so you pay fuel, insurance and servicing directly from then on, and any unused running-cost balance is generally reconciled back to you.

Yes, usually, subject to the car’s age at the end of the term. The income-tax saving works the same. GST differs: there is no GST to claim back on a private-sale used car, but a dealer used car usually still has GST. Fixed fees make the effective rate look higher on cheaper used cars, so check the real numbers.