Novated lease benefits
GST saving on vehicle purchase price (up to $6,334)
Pay for car and running costs with pre-tax salary
A novated lease company does all the set up for you
EV novated leases are exempt from FBT
What is a novated lease?
A novated lease is a way of financing a new or used vehicle and paying for car running costs through your pre-tax salary. With a novated lease you pay less income tax and save on GST on the up-front cost of the vehicle and ongoing costs.
A novated lease involves a three-way agreement between you, your employer, and a novated lease provider. However, the vehicle can be used 100% for personal use.
Because the payments come directly from your salary, novated leasing is sometimes referred to as salary packaging or salary sacrificing a car.
Analysis by Money.com.au found that novated leases can be more than 25% cheaper than financing the same car with a car loan. In some cases, a novated lease with running costs included can even work out cheaper than buying a car and with cash and paying for running costs the traditional way.
How does a novated lease work?
Let’s look step-by-step at how a novated lease works:
- You find the new or used car you want (your novated lease provider can also help you find a vehicle).
- The novated lease company arranges for the vehicle to be purchased on your behalf (with a GST discount), and then leased to you.
- Your employer makes regular, automated deductions from your pre-tax salary and pays them to the leasing company to cover the car lease payments.
- You can also include car running costs in your lease (with a GST discount), based on how many kms you expert to drive each year.
- At the end of the novated lease term, you pay off the vehicle's residual amount so you own it outright, or you can renew the lease for a new term.
Novated lease pricing on some of Australia's best-selling vehicles
Tesla Model Y (RWD)
- Regular driveaway price: $68,314
- Upfront novated lease GST saving: -$6,109
- Total weekly cost: $220
- Runnings costs included in weekly cost (with GST saving): $11.70 (electricity), $9.53 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $39,198
Tesla Model 3 (RWD)
- Regular driveaway price: $64,814
- Upfront novated lease GST saving: -$5,791
- Total weekly cost: $212
- Runnings costs included in weekly cost (with GST saving): $11.79 (electricity), $8.77 (servicing & tyres), $28.85 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $37,552
Ford Ranger (XLT 4X4 Double Cab)
- Regular driveaway price: $73,898
- Upfront novated lease GST saving: -$6,191
- Total weekly cost: $372
- Runnings costs included in weekly cost (with GST saving): $48.46 (fuel), $15.59 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $18,096
MG ZS (Excite)
- Regular driveaway price: $23,990
- Upfront novated lease GST saving: -$2,039
- Total weekly cost: $165
- Runnings costs included in weekly cost (with GST saving): $40.96 (fuel), $13.85 (servicing & tyres), $26.92 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $14,071
Toyota RAV4 (Cruiser AWD Hybrid)
- Regular driveaway price: $59,985
- Upfront novated lease GST saving: -$5,186
- Total weekly cost: $302
- Runnings costs included in weekly cost (with GST saving): $27.69 (fuel), $14.32 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $15,025
BYD Atto 3 (Extended Range)
- Regular driveaway price: $52,113
- Upfront novated lease GST saving: -$4,637
- Total weekly cost: $180
- Runnings costs included in weekly cost (with GST saving): $11.79 (electricity), $9.24 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $32,133
MG4 (Essence)
- Regular driveaway price: $49,709
- Upfront novated lease GST saving: -$4,419
- Total weekly cost: $172
- Runnings costs included in weekly cost (with GST saving): $11.79 (electricity), $8.77 (servicing & tyres), $28.85 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $30,794
Volvo XC40 (Recharge Pure Electric)
- Regular driveaway price: $85,189
- Upfront novated lease GST saving: -$6,191
- Total weekly cost: $268
- Runnings costs included in weekly cost (with GST saving): $11.79 (electricity), $11.15 (servicing & tyres), $32.69 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $47,588
Cupra Born (5-Seat Hatch)
- Regular driveaway price: $64,490
- Upfront novated lease GST saving: -$5,762
- Total weekly cost: $214
- Runnings costs included in weekly cost (with GST saving): $11.79 (electricity), $13.85 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $37,890
Isuzu D-Max (LS-U 4X4 Crew Cab)
- Regular driveaway price: $66,150
- Upfront novated lease GST saving: -$5,715
- Total weekly cost: $342
- Runnings costs included in weekly cost (with GST saving): $49.04 (fuel), $14.79 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $17,750
Mazda CX-5 (MAXX SPORT)
- Regular driveaway price: $44,482
- Upfront novated lease GST saving: -$3,834
- Total weekly cost: $250
- Runnings costs included in weekly cost (with GST saving): $43.27 (fuel), $15 (servicing & tyres), $28.85 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $15,738
Mitsubishi Outlander (Exceed PHEV 5+2 Seat)
- Regular driveaway price: $74,910
- Upfront novated lease GST saving: -$6,191
- Total weekly cost: $241
- Runnings costs included in weekly cost (with GST saving): $11.43 (fuel), $13.46 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $42,892
Kia EV6 (GT-Line AWD)
- Regular driveaway price: $93,995
- Upfront novated lease GST saving: -$6,191
- Total weekly cost: $292
- Runnings costs included in weekly cost (with GST saving): $11.79 (electricity), $11.15 (servicing & tyres), $32.69 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $51,646
MG ZS EV (Essence)
- Regular driveaway price: $49,709
- Upfront novated lease GST saving: -$4,419
- Total weekly cost: $174
- Runnings costs included in weekly cost (with GST saving): $11.79 (electricity), $11.08 (servicing & tyres), $28.85 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $31,114
Kia Niro (EV GT-Line)
- Regular driveaway price: $75,395
- Upfront novated lease GST saving: -$6,191
- Total weekly cost: $241
- Runnings costs included in weekly cost (with GST saving): $11.79 (electricity), $10.85 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $42,580
Polestar 2 (Standard Range)
- Regular driveaway price: $70,951
- Upfront novated lease GST saving: -$6,191
- Total weekly cost: $228
- Runnings costs included in weekly cost (with GST saving): $11.79 (electricity), $10.69 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $40,539
Mazda BT-50 (XTR 4X4 B30E Dual Cab)
- Regular driveaway price: $64,950
- Upfront novated lease GST saving: -$5,611
- Total weekly cost: $338
- Runnings costs included in weekly cost (with GST saving): $50.77 (fuel), $14.33 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $17,771
BMW iX1 (XDrive30 M Sport)
- Regular driveaway price: $91,930
- Upfront novated lease GST saving: -$6,191
- Total weekly cost: $294
- Runnings costs included in weekly cost (with GST saving): $11.79 (electricity), $23 (servicing & tyres), $32.69 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $52,257
Mazda CX-60 (GT PHEV)
- Regular driveaway price: $87,391
- Upfront novated lease GST saving: -$6,191
- Total weekly cost: $280
- Runnings costs included in weekly cost (with GST saving): $16.50 (fuel), $17.52 (servicing & tyres), $30.77 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $49,621
Hyundai Tucson (FWD NX4)
- Regular driveaway price: $39,206
- Upfront novated lease GST saving: -$3,368
- Total weekly cost: $230
- Runnings costs included in weekly cost (with GST saving): $46.73 (fuel), $12.62 (servicing & tyres), $28.85 (comprehensive insurance), $16.92 (registration & CTP)
- Total tax saving during lease: $14,714
Vehicle pricing and novated lease estimates correct as at October 2023 and assume a driver in NSW, driving 15,000km per year, with an annual salary of $120,000.
8 benefits of a novated lease
Here are some of the other main reasons novated leases are popular in Australia, both for employees and employers:
1
You get a GST saving on car-running costs bundled into the lease
2
Income tax savings as payments come from pre-tax salary
3
If you're novating an electric car, there is no fringe benefits tax (FBT) payable
4
Lease provider may be able to get you a bulk discount on regular car price
5
100% personal use of the vehicle
6
Flexibility to amend the lease set up if changing employers
7
Reduces payroll tax for employers
8
Staff benefit for employers to offer with low admin costs
I always recommend people to consider all of the novated lease pros and cons before committing.
What novated lease options are there?
Fully maintained novated lease
With a fully maintained novated lease, you package the running costs of the vehicle into your pre-tax payment, which saves you even more money.
This is by far the most popular choice. Not least because you will also pay no GST on the running costs for your vehicle.
The fully maintained option includes:
- Registration & CTP insurance
- Servicing costs
- Comprehensive car insurance
- Replacement tyres
- Petrol/charging costs
- Vehicle repairs
These costs will be estimated based on the number of kilometres you intend to drive each year but can be changed later on.
Depending on the agreement, you may have the option to choose the supplier for these (e.g. your insurer of choice). Or you might be limited to the leasing company’s preferred supplier (e.g. a fuel card that can only be used at certain petrol stations).
Non-maintained novated lease
With a non-maintained novated lease, your payments only cover the vehicle repayments and the finance costs, including interest and fees. You’ll need to cover the running costs of the vehicle yourself.
Self-managed novated lease
With a self-managed novated lease, you arrange the finance with a lender yourself. A novated leasing company may then assist with setting up the salary sacrifice with your employer or you might have to do this yourself.
How is a novated lease different to a car loan?
A novated lease and a car loan are both ways of financing a vehicle, with no restrictions on whether the vehicle is used for personal or business purposes.
The main difference is in how the vehicle is financed and taxed:
A fully maintained novated lease...
is only available through novated lease providers, and can include both the vehicle finance cost and related operating costs. The payments are made directly from your salary.
A car loan...
is available from banks, dealerships, car loan lenders, and vehicle brokers. Car loans generally don’t cover on-road costs and insurance (it may be possible with an unsecured personal loan). You make the repayments directly to the lender without any involvement from your employer.
Novated Lease vs Car Loan Comparison
Feature | Amount |
|---|---|
Novated Lease | $5,000 - $150,000 |
Car Loan | $5,000 - $100,000 |
Feature | Terms |
Novated Lease | 6 months - 5 years |
Car Loan | 1 - 7 years |
Feature | Fees |
Novated Lease | Low |
Car Loan | Medium |
Feature | Interest rates |
Novated Lease | From 6.00% |
Car Loan | From 6.00% |
Feature | Purpose |
Novated Lease | Salary packaging a vehicle |
Car Loan | Financing a personal vehicle without salary packaging |
Feature | Tax savings |
Novated Lease | Yes |
Car Loan | No |
Feature | Vehicle ownership |
Novated Lease | At end of lease |
Car Loan | Immediate |
| Feature | Novated Lease | Car Loan |
|---|---|---|
Amount | $5,000 - $150,000 | $5,000 - $100,000 |
Terms | 6 months - 5 years | 1 - 7 years |
Fees | Low | Medium |
Interest rates | From 6.00% | From 6.00% |
Purpose | Salary packaging a vehicle | Financing a personal vehicle without salary packaging |
Tax savings | Yes | No |
Vehicle ownership | At end of lease | Immediate |
What kind of car can I finance with a novated lease?
A common misconception I hear from people considering a novated lease is that it’s 'only for new cars.’ Not so.
You can also a novated lease to finance a used car. In fact, you can get a novated lease for more or less any car, provided it:
- Won't be more than 15 years old at the end of the novated lease term.
- Is a passenger vehicle (this can include utes).
- Does not have a maximum payload above 1,000kg.
You can typically also use a novated lease whether you buy through a car dealership or private seller. Just bear in mind there generally is no GST saving with a private sale.
What is novated lease fringe benefits tax (FBT)?
An important point to bear in mind is that your employer may need to pay fringe benefits tax (FBT) on the novated lease benefit provided to you. This is a tax that applies to most non-salary employee benefits. Employers typically pass this cost onto the employee.
But in 2022 the Australian government announced that low- and zero-emission vehicles – electric cars (EVs) and plugin-hybrids (PHEVs) – would be exempt from FBT up to the luxury car tax threshold.
This means eligible electric car novated leases are eligible for significant further savings.
What happens at the end of a novated lease?
You have three options available at the end of your novated lease:
- Pay any residual/balloon amount and gain full ownership of the vehicle
- Sell the vehicle and claim any profit from the vehicle (above the residual) tax-free
- Refinance the vehicle to a new lease agreement
The balloon or ‘residual’ amount is a pre-determined lump-sum repayment made at the end of the novated lease term.
The residual amount will vary, and shorter terms will have higher residuals attached.
If you are using the car to travel extensively (35,000 km or more per year) you can usually opt for a lower residual.
Speak to your leasing provider about this.
What are the interest rates on a novated lease?
Interest rates on a novated lease generally start from around 7.5% but can be higher depending on your situation.
Novated lease interest rates are generally influenced by the same factors as car loan interest rates, including:
Your credit history
The price of the vehicle
The age of the vehicle
Whether you're purchasing from a private seller or dealership
How to qualify for a novated lease
You can generally qualify for a novated lease if you are:
- Employed on a full-time or permanent part-time basis
- Working for an employer who supports a novated leasing agreement
- Capable of meeting repayments for the duration of the lease (the lender will assess your application like any other kind of finance and will do a credit score check)
- Over 21 years of age. On rare occasions, lenders may approve applicants between 18 - 21 years old
- Buying an eligible vehicle
Get a quick novated lease quote
See how much you could save on your car and running costs with a novated lease. Get a personalised, no-obligation quote today.
