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Novated Lease

Novated Lease Australia

Updated 10 Apr 2025

Pay for a new or used car plus running costs through your salary to save $1,000s in tax.

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Sean Callery Editor Money.com.au
Paul Duggan Money.com.au Chief Executive Officer
Money.com.au's Senior Finance Writer, Jared Mullane

Our dedicated team of Money.com.au Car Loan experts is here to help

We give a buck about novated lease

What kind of car do you want to novate?

Novated lease estimates for your car PLUS running costs
Toyota RAV4
Toyota RAV4
From $241/week

Tax saving $16,558

Get a quote

Tesla finance application
Tesla Model 3
From $209/week

Tax saving $38,865

Get a quote

mitsubishi outlander phev novated lease
Mitsubishi Outlander
From $216/week

Tax saving $39,936

Get a quote

Toyota Hilux novated lease deal
Toyota HiLux
From $285/week

Tax saving $16,266

Get a quote

Isuzu Ute D-MAX
Isuzu D-Max
From $310/week

Tax saving $21,162

Get a quote

Hyundai IONIQ 5
Hyundai Ioniq 5
From $241/week

Tax saving $44,935

Get a quote

Ford Everest novated lease
Ford Everest
From $305/week

Tax saving $20,489

Get a quote

These estimates are for illustrative purposes only and assume a driver in NSW, with annual pre-tax salary of $100,000, driving 15,000km per year over a five-year lease. Running costs include fuel/electricity, comprehensive car insurance, registration and CTP, servicing and tyres. Pricing is for base vehicle model. These estimates should not be considered as final or binding. Actual costs and savings may vary based on your individual circumstances, including your financial situation, tax bracket, and changes in government policies.

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What is a novated lease?

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Shaun McGowan Money.com.au founder
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Loans Expert

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 your employer, but 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.

Novated leasing in Australia by the numbers

pie chart

Maximum up-front GST saving on most vehicles purchased under a novated lease

$6,334

Interest rates on novated leases start from

8% p.a.

Max purchase price on EVs eligible for the novated lease electric car discount

$91,387

Potential income tax saving* on eligible car costs salary sacrificed (depending on income)

18-47%

Source: Australian Taxation Office for FY 2024/25 and Money.com.au analysis. *Includes Medicare levy of 2%.

How does a novated lease work?

Tesla Novated Lease

Let’s look step-by-step at how a novated lease works:

  1. You find the new or used car you want (your novated lease provider can also help you find a vehicle).
  2. The novated lease company arranges for the vehicle to be purchased on your behalf (with a GST discount), and then leased to you.
  3. Your employer makes regular, salary sacrifice car deductions from your pre-tax salary and pays them to the leasing company to cover the car lease payments.
  4. 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.
  5. 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.
Shaun McGowan Money.com.au founder

Shaun McGowan, Founder of Money.com.au

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. See how much a novated lease is for you with this novated lease calculator from the team at Novated Lease Australia.

Shaun McGowan, Founder of Money.com.au

What are the interest rates on a novated lease?

Interest rates on a novated lease generally start from around 8-12% p.a. but can be higher depending on your situation. Novated lease interest rates are generally influenced by the same factors as car loan interest rates.

Drivers with higher credit scores (reflecting a clean credit history) will generally qualify for lower interest rates on their novated lease finance.

Newer vehicles generally qualify for lower rates.

Drivers who own their own home (with or without a mortgage) are generally viewed as being less risky and qualify for lower rates as a result.

If you have a strong history of employment in your industry, you may qualify for lower rates.

Lady driving a novated lease used car

How a novated lease can save you money

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  • Income tax savings, as the payments are made from your salary before tax is deducted.
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  • GST savings on the up-front cost of the vehicle and eligible salary sacrificed running costs.
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  • Fleet discounts that novated lease companies can often negotiate for customers an extra on your vehicle due to the volume of cars they order for customers.
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  • Electric car discount which is a further tax incentive for eligible EV novated lease, meaning the entire cost of the vehicle and running costs can be salary sacrificed without fringe benefits tax (FBT)

The example below demonstrates the potential savings on one of Australia's most popular vehicles.

What novated lease options are there?

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:

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  • Registration & CTP insurance
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  • Servicing costs
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  • Comprehensive car insurance
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  • Replacement tyres
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  • Petrol/charging costs
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  • 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).

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.

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.

Couple shopping for car

How to qualify for a novated lease

You can generally qualify for a novated lease if you are:

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  • Employed on a full-time or permanent part-time basis
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  • Working for an employer who supports a novated leasing agreement
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  • 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)
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  • Over 21 years of age. On rare occasions, lenders may approve applicants between 18 - 21 years old
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  • Buying an eligible vehicle

Applying for a novated lease

Find your best deal on a novated lease in three simple steps:

Step 1

apply

Pre-qualify

Answer our simple questions about your situation.

Check if I qualify

Step 2

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Compare

Review your novated lease costs and options.

Check if I qualify

Step 3

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3. Apply

It's simple and quick to apply online.

Apply for a novated lease

Novated lease FAQs and myths busted

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 with a novated lease vs a car loan the main difference is in how the vehicle is financed and taxed:

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  • 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.
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  • 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.

A common misconception among 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:

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  • Won't be more than 15 years old at the end of the novated lease term.
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  • Is a passenger vehicle (this can include utes).
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  • 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.

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 the Australian government announced that low or zero-emission vehicles – electric cars (EVs) – 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.

You have three options available at the end of your novated lease:

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  • Pay any residual/balloon amount and gain full ownership of the vehicle
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  • Sell the vehicle and claim any profit from the vehicle (above the residual) tax-free
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  • 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.

The short answer is no. There used to be a requirement, but that was over 10 years ago. It doesn't matter whether you drive 10,000 km or 30,000 km or whether you drive for personal or business use.

If you are self-employed — i.e. are not paid a salary by an employee or receiving a salary through your own company — you will need to look at alternative forms of vehicle finance, such as a chattel mortgage for business vehicles, or low-doc car loan.

Novated leasing allows for a maximum vehicle payload of 1,000 kg — if you want to finance heavy machinery, a non-passenger vehicle, or vehicles with a heavier payload than the maximum limit, you may wish to consider a chattel mortgage or equipment finance as alternatives.

In salary packaging a vehicle, Fringe Benefits Tax (FBT) is a tax paid by an employer for certain benefits received by employees. The Employee Contribution Method (ECM) is a way to reduce the FBT liability to a nil balance by having the employee make post-tax contributions to maintaining the vehicle.

The lowest salary you need for a novated lease will depend on the cost of the vehicle being novated. Novated leasing approval is dependent on your capacity as a borrower, and with a minimum vehicle price of $15,000 on a 5-year term with a 25% balloon payment, even employees on a modest salary can take advantage of novated lease benefits.

If you leave your job during the term of your novated lease, you will still be responsible for finance payments on the vehicle. The lease will be “de-novated”, the running costs are removed from the agreement and repayments will continue much the same way as a standard car loan.

When you are employed again — provided your new employer agrees to salary packaging the vehicle — the lease can be re-novated, and revert back to its initial state including running costs.

If your new employer accepts novated leasing, then you will simply be able to transfer your lease to them. There is a bit of paperwork involved, but largely this is a seamless process.

See your novated lease savings

Get an easy-to-understand personalised quote.

Vehicle value

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Shaun McGowan Money.com.au founder

Written by

Shaun McGowan

Shaun McGowan is the founder of Money.com.au. He's determined to help people and businesses pay as little as possible for financial products, through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

Sean Callery Editor Money.com.au

Reviewed by

Sean Callery

Sean Callery is the Editor of Money.com.au. He has over 15 years of international experience. He is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821) and is compliant to provide general advice in Tier 1 General Insurance (RG 146) products.

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