Novated lease
A three-way car lease where your employer makes payments from your pre-tax salary.
A novated lease involves you, your employer and a finance company. The employer deducts lease payments and running costs from your salary, partly before tax, and the obligation follows you if you change jobs.
The tax benefit comes from paying running costs with pre-tax dollars. Fringe benefits tax normally claws much of this back, though eligible electric and low-emission vehicles have attracted an exemption that substantially improves the maths.
The arrangement bundles finance, fuel, servicing, tyres, registration and insurance into one deduction, which is administratively convenient but makes the true cost harder to see.
Why EV leases became popular
With the FBT exemption on eligible electric vehicles, the entire package can be paid from pre-tax income, producing savings that conventional vehicles cannot match.
The bit people get wrong
The residual value owed at the end is set by ATO minimums, not by what the car is worth. If the market value falls below it, you cover the difference from your own pocket.
Common questions
Is a novated lease worth it?
It depends on the vehicle, your marginal rate and FBT treatment. Eligible EVs often stack up well; conventional cars frequently do not once fees and the residual are included.
What happens if I change jobs?
The lease reverts to you personally unless the new employer agrees to take it on. You remain responsible for payments either way.
Does it affect my HECS repayment?
It can. Reportable fringe benefits are added back when calculating repayment income, so a novated lease may increase your compulsory HECS repayment.