What is a novated lease? We explain it simply

  • Pay for a new or used car plus running costs through your salary to save $1,000s in tax.
  • Major government incentive available on electric cars.

Check how much you can save with a novated lease.

Novated Lease
Novated Lease

What's covered in our novated lease guide:

1

3

5

7

9

2

4

6

8

1

2

3

4

5

6

7

8

9

what is a novated lease

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.

Novated lease tax savings

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

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)
  • Electricity: $11.79
  • Servicing & tyres: $9.53
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
Total tax saving during lease

$39,198

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)
  • Fuel: $48.46
  • Servicing & tyres: $15.59
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
Total tax saving during lease

$37,552

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)
  • Electricity: $11.79
  • Servicing & tyres $8.77
  • Comprehensive insurance: $28.85
  • Registration & CTP: $16.92
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)
  • Fuel: $40.96
  • Servicing & tyres: $13.85
  • Comprehensive insurance: $26.92
  • Registration & CTP: $16.92
Total tax saving during lease

$14,071

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)
  • Fuel: $27.69
  • Servicing & tyres: $14.32
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
Total tax saving during lease

$15,025

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)
  • Electricity: $11.79
  • Servicing & tyres: $9.24
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
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)
  • Electricity: $11.79
  • Servicing & tyres $8.77
  • Comprehensive insurance: $28.85
  • Registration & CTP: $16.92
Total tax saving during lease

$30,794

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)
  • Electricity: $11.79
  • Servicing & tyres: $11.15
  • Comprehensive insurance: $32.69
  • Registration & CTP: $16.92
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)
  • Electricity: $11.79
  • Servicing & tyres: $13.85
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
Total tax saving during lease

$37,890

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)
  • Fuel: $49.04
  • Servicing & tyres: $14.79
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
Total tax saving during lease

$17,750

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)
  • Fuel: $43.27
  • Servicing & tyres: $15
  • Comprehensive insurance: $28.85
  • Registration & CTP: $16.92
Total tax saving during lease

$15,738

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)
  • Fuel: $11.43
  • Servicing & tyres: $13.46
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
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)
  • Electricity: $11.79
  • Servicing & tyres: $11.15
  • Comprehensive insurance: $32.69
  • Registration & CTP: $16.92
Total tax saving during lease

$51,646

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)
  • Electricity: $11.79
  • Servicing & tyres: $11.08
  • Comprehensive insurance: $28.85
  • Registration & CTP: $16.92
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)
  • Electricity: $11.79
  • Servicing & tyres: $10.85
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
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)
  • Electricity: $11.79
  • Servicing & tyres: $10.69
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
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)
  • Fuel: $50.77
  • Servicing & tyres: $14.33
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
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)
  • Electricity: $11.79
  • Servicing & tyres: $23
  • Comprehensive insurance: $32.69
  • Registration & CTP: $16.92
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)
  • Fuel: $16.50
  • Servicing & tyres: $17.52
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92
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)
  • Fuel: $46.73
  • Servicing & tyres: $12.62
  • Comprehensive insurance: $28.85
  • Registration & CTP: $16.92
Total tax saving during lease

$15,714

Regular driveaway priceUpfront novated lease GST savingTotal weekly costRunnings costs included in weekly cost (with GST saving) Total tax saving during lease

$68,314

-$6,109

$220

  • Electricity: $11.79
  • Servicing & tyres: $9.53
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$39,198

$64,814

-$5,791

$212

  • Fuel: $48.46
  • Servicing & tyres: $15.59
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$37,552

$73,898

-$6,191

$372

  • Electricity: $11.79
  • Servicing & tyres $8.77
  • Comprehensive insurance: $28.85
  • Registration & CTP: $16.92

$18,096

MG ZS (Excite)

$23,990

-2,039

$165

  • Fuel: $40.96
  • Servicing & tyres: $13.85
  • Comprehensive insurance: $26.92
  • Registration & CTP: $16.92

$14,071

$59,985

-$5,186

$302

  • Fuel: $27.69
  • Servicing & tyres: $14.32
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$15,025

$52,113

-$4,637

$180

  • Electricity: $11.79
  • Servicing & tyres: $9.24
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$32,133

MG4 (Essence)

$49,709

-$4,419

$172

  • Electricity: $11.79
  • Servicing & tyres $8.77
  • Comprehensive insurance: $28.85
  • Registration & CTP: $16.92

$30,794

$85,189

-$6,191

$268

  • Electricity: $11.79
  • Servicing & tyres: $11.15
  • Comprehensive insurance: $32.69
  • Registration & CTP: $16.92

$47,588

Cupra Born (5-Seat Hatch)

$64,490

-$5,762

$214

  • Electricity: $11.79
  • Servicing & tyres: $13.85
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$37,890

$66,150

-$5,715

$342

  • Fuel: $49.04
  • Servicing & tyres: $14.79
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$17,750

$44,482

-$3,834

$250

  • Fuel: $43.27
  • Servicing & tyres: $15
  • Comprehensive insurance: $28.85
  • Registration & CTP: $16.92

$15,738

$74,910

-$6,191

$241

  • Fuel: $11.43
  • Servicing & tyres: $13.46
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$42,892

Kia EV6 (GT-Line AWD)

$93,995

-$6,191

$292

  • Electricity: $11.79
  • Servicing & tyres: $11.15
  • Comprehensive insurance: $32.69
  • Registration & CTP: $16.92

$51,646

$49,709

-$4,419

$174

  • Electricity: $11.79
  • Servicing & tyres: $11.08
  • Comprehensive insurance: $28.85
  • Registration & CTP: $16.92

$31,114

Kia Niro (EV GT-Line)

$75,395

-$6,191

$241

  • Electricity: $11.79
  • Servicing & tyres: $10.85
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$42,580

Polestar 2 (Standard Range)

$70,951

-$6,191

$228

  • Electricity: $11.79
  • Servicing & tyres: $10.69
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$40,539

Mazda BT-50 (XTR 4X4 B30E Dual Cab)

$64,950

-$5,611

$338

  • Fuel: $50.77
  • Servicing & tyres: $14.33
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$17,771

BMW iX1 (XDrive30 M Sport)

$91,930

-$6,191

$294

  • Electricity: $11.79
  • Servicing & tyres: $23
  • Comprehensive insurance: $32.69
  • Registration & CTP: $16.92

$52,257

Mazda CX-60 (GT PHEV)

$87,391

-$6,191

$280

  • Fuel: $16.50
  • Servicing & tyres: $17.52
  • Comprehensive insurance: $30.77
  • Registration & CTP: $16.92

$49,621

Hyundai Tucson (FWD NX4)

$39,206

-$3,368

$230

  • Fuel: $46.73
  • Servicing & tyres: $12.62
  • Comprehensive insurance: $28.85
  • Registration & CTP: $16.92

$15,714

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.

Novated lease benefits

Best match guarantee

GST saving on the vehicle (up to $6,191)

Consolidating debt

Pay for car and running costs with pre-tax salary

Novated Lease

EV novated leases are exempt from FBT

Australian Customer Support

A novated lease company does all the set up for you

Here are some of the other main reasons novated leases are popular in Australia, both for employees and employers:

  • You get a GST saving on car-running costs bundled into the lease.
  • Income tax savings as payments come from pre-tax salary.
  • If you're novating an electric car, there is no fringe benefits tax (FBT) payable.
  • Lease provider may be able to get you a bulk discount on regular car price.
  • 100% personal use of the vehicle.
  • Flexibility to amend the lease set up if changing employers.
  • Reduces payroll tax for employers.
  • 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?

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:

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.

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.

Read our in-depth guide on novated leasing versus car loans.

Novated Lease vs Car Loan Comparison

FeatureNovated LeaseCar 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 novated lease

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 6.5% 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

If you don't have the strongest credit, read our explainer on how to get a novated lease with bad credit.

eligible for a novated lease

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
Compare loans in 60 seconds

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.

GET STARTEDGET STARTED

Novated lease myths busted

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.

Novated lease guides and resources

Find out more about the possible savings, benefits and things to watch out for, plus your range of options with a novated lease in Australia.

Written by

Shaun McGowan Money.com.au founder

Loans Expert

Shaun McGowan

Reviewed by

Sean Callery Editor Money.com.au

Editor

Sean Callery

AS FEATURED IN