Novated Lease
Novated Lease Australia
A novated lease is one of the most tax-effective ways for an Australian employee to finance a vehicle. It is a three-way agreement between you, your employer and a finance company. Your employer deducts the lease payments and running costs from your pre-tax salary, which reduces your taxable income and can save you thousands of dollars per year. For eligible battery electric vehicles, the savings are even larger because the entire vehicle cost is exempt from Fringe Benefits Tax under the Australian Government's Electric Car Discount policy, meaning 100% of your vehicle costs can be paid from pre-tax income with no FBT offset required.
Australian Finance & Loans is an independent finance broker with access to over 50 Australian lenders. We are not a novated lease company selling our own product. We compare novated lease options across the market and help you understand the real savings for your specific salary, vehicle choice and situation before you commit. We also arrange chattel mortgages, standard car loans and business loans, so if a novated lease is not the right fit for your circumstances, we can recommend the structure that is.
How a Novated Lease Works
A novated lease involves three parties: the employee, the employer and the finance company. The finance company purchases the vehicle on your behalf. Your employer agrees to make the lease payments and associated running costs as salary deductions from your gross pay. You choose the vehicle, you drive it, and you are responsible for its use and maintenance. The employer's only role is to facilitate the salary deductions.
The key financial benefit is that the lease payments and bundled running costs (registration, insurance, servicing, tyres, fuel or electricity) are deducted from your pre-tax salary. This reduces your taxable income. The higher your marginal tax rate, the greater the saving. An employee earning $120,000 per year is on a marginal rate of 39% (including the Medicare levy). Every dollar of vehicle cost paid from pre-tax salary saves 39 cents in tax compared to paying from after-tax income.
If you change jobs, the lease comes with you. Your new employer can agree to take over the salary deductions (this is called a "novation" to the new employer), or you can take over the payments personally until you find a new employer willing to novate. The vehicle is yours throughout. It does not belong to your employer.
The EV FBT Exemption: Why Electric Vehicles Change Everything
For most of the history of novated leasing in Australia, the tax benefit was partially offset by Fringe Benefits Tax. FBT is a tax your employer pays on non-cash benefits provided to employees, including the personal use of a vehicle. Under a standard novated lease on a petrol or diesel vehicle, the employee typically makes a post-tax contribution (called the Employee Contribution Method) to reduce or eliminate the FBT liability. This post-tax contribution reduces the overall tax saving of the novated lease.
The Electric Car Discount, introduced on 1 July 2022, changed this equation entirely for eligible electric vehicles. Under the policy, battery electric vehicles (BEVs) and hydrogen fuel cell vehicles priced below the luxury car tax threshold ($91,387 for the 2026/27 financial year) are completely exempt from FBT when provided through a novated lease. This means no FBT is payable by the employer, and no post-tax Employee Contribution is required from the employee. The entire vehicle cost, including lease payments, registration, insurance, servicing, tyres and electricity, can be paid from pre-tax salary.
The result is that a novated lease on an eligible EV delivers significantly greater savings than a novated lease on a comparable petrol vehicle. Depending on the employee's salary, vehicle price and lease term, the annual saving from the FBT exemption alone is typically $4,000 to $8,000 per year. Combined with the income tax saving from pre-tax salary deductions, the total benefit over a 3 to 5 year lease can reach $15,000 to over $40,000 compared to purchasing the same vehicle outright or financing it with a standard car loan. For a deeper look at EV finance options including novated leasing, see our EV finance guide.
Eligibility Rules for the EV FBT Exemption (April 2026)
To qualify for the FBT exemption, all of the following must be met. The vehicle must be a full battery electric vehicle (BEV) or a hydrogen fuel cell electric vehicle (FCEV). Plug-in hybrid electric vehicles (PHEVs) lost eligibility from 1 April 2025, and new PHEV novated leases entered after that date do not qualify. The vehicle must be valued below the luxury car tax threshold for fuel-efficient vehicles, which is $91,387 for the 2026/27 financial year. This value includes the GST, dealer delivery charges, standard and statutory warranties, and any accessories or modifications applied before delivery. The vehicle must be first held and used on or after 1 July 2022. The vehicle must be a passenger car designed to carry fewer than 9 passengers and a load of less than one tonne.
One critical detail that most guides overlook: accessories added before delivery can push the vehicle's LCT value above the threshold. Premium paint, larger alloy wheels, tinted windows, floor mats and other pre-delivery additions are included in the LCT calculation. If you are considering a vehicle that sits close to the $91,387 threshold, confirm the total LCT value including all pre-delivery additions before committing. Once luxury car tax has been payable on a vehicle, it can never qualify for the FBT exemption, even if its value subsequently falls below the threshold.
The FBT Exemption Review
The Australian Government commenced a formal review of the Electric Car Discount policy on 6 February 2026. The review is due to report by mid-2027, but a decision to continue, alter or scrap the FBT exemption can be made at any time during this 18-month window. No changes have been announced as of April 2026. The exemption remains fully in force today.
If you lock in a novated lease on an eligible EV while the exemption is in place, the benefit applies for the full term of that lease based on standard legislative practice. Government policy changes are generally not applied retrospectively to existing arrangements. However, this has not been formally confirmed for this specific policy, so it is worth noting as part of your decision-making. If you are considering a novated lease on an EV, the case for acting sooner rather than later is strong. Locking in now secures the current benefit for the full lease term regardless of what the review concludes.
Novated Lease on a Petrol or Diesel Vehicle
A novated lease is not limited to electric vehicles. You can novate any passenger vehicle, including petrol, diesel and hybrid cars. However, for non-EV vehicles, the FBT exemption does not apply. This means the employer is liable for FBT on the personal use component of the vehicle, and this cost is typically passed back to the employee through a post-tax contribution under the Employee Contribution Method (ECM).
The ECM post-tax contribution reduces the overall tax saving of the novated lease compared to an EV novated lease, but there is still a benefit. The running costs (fuel, registration, insurance, servicing, tyres) are still paid from pre-tax salary, which delivers an income tax saving. The GST on the vehicle purchase price and running costs is not payable under a novated lease, which reduces the total cost. And the convenience of bundling all vehicle expenses into a single salary deduction simplifies budgeting.
Whether a novated lease on a petrol vehicle saves you money compared to a standard car loan depends on your salary, the vehicle price, your annual kilometres and the specific lease structure. It is not always the better option. We model the comparison for your specific situation before you commit so you are making a decision based on actual numbers, not marketing claims.
Popular EVs for Novated Leasing in 2026
The range of FBT-exempt electric vehicles available in Australia has expanded significantly. All of the following models are priced below the $91,387 LCT threshold in their standard configurations as of April 2026, making them eligible for the FBT exemption through a novated lease.
The Tesla Model Y remains Australia's top-selling EV with pricing starting from around $60,300 before on-road costs. The BYD Sealion 7 has emerged as a strong mid-size SUV competitor, alongside the BYD Atto 3, BYD Dolphin and the budget-friendly BYD Atto 1 which starts from approximately $25,000 to $30,000. The Zeekr 7X, MG4, Polestar 2, Hyundai Ioniq 5, Kia EV6 and Geely EX5 are all popular choices. New models are arriving throughout 2026 including electric utes and larger SUVs. For a full breakdown of current EV models and pricing, see our EV loans page.
Reportable Fringe Benefits: What Most Guides Do Not Tell You
Even though the employer does not pay FBT on an eligible EV under a novated lease, the benefit is still classified as a reportable fringe benefit amount (RFBA). This amount appears on your income statement (previously called a payment summary) and is used in income-tested calculations for certain government obligations and benefits.
The RFBA can affect your HECS-HELP repayment thresholds, meaning you may be required to make HECS repayments at a lower income than you would without the novated lease. It can affect Family Tax Benefit calculations, the Medicare Levy Surcharge assessment, and other income-tested government obligations. The RFBA does not change the overall financial advantage of the novated lease in most cases, but it is something to model before committing. A good broker or accountant will walk you through the impact for your specific situation.
Who Is Eligible for a Novated Lease
To enter a novated lease, you must be employed and your employer must agree to facilitate salary packaging. Most large employers, government departments, hospitals, universities and major corporations offer salary packaging as a standard benefit. Some smaller employers may not have salary packaging arrangements in place but can set one up relatively quickly through a novated lease provider.
You do not need to own a business or have an ABN. A novated lease is specifically designed for employees, not for sole traders, partnerships or companies. If you are self-employed, a chattel mortgage is typically the more appropriate and tax-effective structure. If you are a contractor paid through a company structure, eligibility depends on how the employment relationship is structured. We can assess your specific situation and advise on whether a novated lease or another product is the better fit.
Novated Lease vs Car Loan vs Chattel Mortgage
Novated Lease
Best for: employees whose employer offers salary packaging, especially for eligible EVs where the FBT exemption applies. Payments from pre-tax salary. Running costs bundled. FBT exempt for eligible EVs. Vehicle travels with you if you change jobs. Not available to self-employed borrowers.
Standard Car Loan
Best for: individuals buying a vehicle for personal use, self-employed borrowers, contractors, or employees whose employer does not offer salary packaging. Fixed rate, fixed term, vehicle as security. No tax benefits for personal use vehicles. Simplest structure. Widest range of lenders. See our new car loans and used car loans pages.
Chattel Mortgage
Best for: businesses and ABN holders buying a vehicle or equipment for business use. Own the asset from day one. Claim GST, depreciation and the instant asset write-off. Interest deductible. Not available for personal use vehicles. See our chattel mortgage page.
The right structure depends on your employment situation, how you use the vehicle, whether your employer offers salary packaging, and whether you want to maximise tax savings or minimise complexity. We compare all three and recommend the best option for your specific circumstances.
How the Process Works
First, you tell us what you need. Call 1300 194 926, email info@australianfinanceloans.com or book a call through our website. Tell us the vehicle you are considering, your approximate salary, and whether your employer offers salary packaging. That is all we need to start.
Second, we model the savings. We calculate the pre-tax salary deductions, the FBT position (exempt or ECM), the running cost estimates, and the total cost compared to buying outright or financing with a standard car loan. We present you with a clear, honest comparison so you can see whether a novated lease genuinely saves you money in your specific situation.
Third, we identify the best novated lease provider and structure from our panel. Not all novated lease providers charge the same fees, offer the same flexibility or deliver the same service. We compare across the market and recommend the option that delivers the best outcome for you.
Fourth, we coordinate with your employer's payroll team to set up the salary packaging arrangement, manage the application through to settlement, and ensure everything is in place before your vehicle arrives.
Novated Lease Details
Lease terms: typically 1 to 5 years. The most common terms are 3 to 5 years. Shorter terms result in higher salary deductions but lower total cost. Longer terms reduce deductions but increase total interest and running costs.
Residual value: every novated lease has a mandatory residual (balloon) value set by the ATO based on the lease term. The residual is a lump sum payable at the end of the lease. For a 3-year lease, the minimum residual is 46.88% of the vehicle's purchase price. For a 5-year lease, it is 28.13%. At the end of the lease, you can pay the residual and keep the vehicle, refinance the residual, trade the vehicle toward a new lease, or return the vehicle to the finance company.
Running costs included: registration, comprehensive insurance, servicing, tyres, fuel or electricity. These are estimated at the start of the lease and bundled into the salary deduction. At the end of the FBT year (31 March), a reconciliation occurs. If actual running costs were lower than estimated, the surplus is refunded or carried forward. If costs were higher, the shortfall is collected.
GST saving: under a novated lease, the GST on the vehicle purchase price and running costs is not payable. This effectively reduces the purchase price by approximately 9.1% compared to buying privately.
Vehicles: any new or used passenger vehicle can be novated. For the EV FBT exemption, only eligible BEVs and FCEVs under the $91,387 LCT threshold qualify. Used EVs may qualify if they were first held and used on or after 1 July 2022 and have never had luxury car tax payable on them.
Frequently Asked Questions About Novated Leases in Australia
What is a novated lease in simple terms?
A novated lease is a way for employees to pay for a car and its running costs from their pre-tax salary through their employer. It reduces your taxable income and can save thousands per year. For eligible electric vehicles, the savings are even larger because the vehicle is exempt from Fringe Benefits Tax.
Who can get a novated lease?
Any Australian employee whose employer agrees to facilitate salary packaging. Most large employers, government departments, hospitals, universities and major corporations offer salary packaging. Self-employed individuals, sole traders and ABN holders are not eligible for a novated lease. If you are self-employed, a chattel mortgage is typically the better structure.
How much can I save with a novated lease on an EV?
Savings depend on your salary, the vehicle price and the lease term. As a general guide, an employee earning $120,000 per year packaging an eligible EV priced at $60,000 to $65,000 can save approximately $8,000 to $12,000 per year in combined FBT and income tax savings. Over a 5-year lease, total savings can reach $40,000 to $60,000 compared to purchasing the same vehicle outright from after-tax income.
What happens to my novated lease if I change jobs?
The lease stays with you. Your new employer can agree to take over the salary deductions (this is called novating to the new employer). If your new employer does not offer salary packaging, you take over the payments personally until you find an employer who does, or until the lease ends. The vehicle remains yours throughout.
Are plug-in hybrids (PHEVs) still eligible for the FBT exemption?
No. From 1 April 2025, plug-in hybrid electric vehicles entering a new novated lease arrangement no longer qualify for the FBT exemption. Only full battery electric vehicles (BEVs) and hydrogen fuel cell vehicles (FCEVs) qualify. PHEVs under a binding arrangement entered before 1 April 2025 may continue the exemption for the original lease term.
Is the FBT exemption for EVs being scrapped?
The Australian Government commenced a formal review of the Electric Car Discount on 6 February 2026, due to report by mid-2027. No changes have been announced. The exemption remains fully in force as of April 2026. A decision to continue, alter or scrap the exemption can be made at any time during the review window. If you enter a novated lease while the exemption is in place, the benefit is expected to apply for the full lease term based on standard legislative practice.
What is the luxury car tax threshold for EVs in 2026?
The LCT threshold for fuel-efficient vehicles (including eligible EVs) is $91,387 for the 2026/27 financial year. The vehicle's value at first retail sale, including GST, dealer delivery, standard warranties and all pre-delivery accessories, must be below this threshold to qualify for the FBT exemption.
Can I novate a used car?
Yes. You can novate a new or used vehicle. For a used EV to qualify for the FBT exemption, it must have been first held and used on or after 1 July 2022, and luxury car tax must never have been payable on the vehicle. Confirm eligibility with your broker before committing.
What is a reportable fringe benefit and does it affect me?
Even though the employer does not pay FBT on an eligible EV, the benefit is still classified as a reportable fringe benefit amount (RFBA) that appears on your income statement. The RFBA can affect HECS-HELP repayment thresholds, Family Tax Benefit calculations and the Medicare Levy Surcharge assessment. It does not change the overall advantage of the novated lease in most cases, but it should be modelled before committing. We walk you through this as part of our assessment.
Does my employer have to agree to a novated lease?
Yes. Your employer must agree to facilitate the salary deductions. Most large employers already offer salary packaging and will process a novated lease as part of their standard benefits program. Smaller employers may need to set up a salary packaging arrangement, which is straightforward through a novated lease provider. Your employer has no financial liability under the novated lease. They are simply facilitating the payroll deductions.
Is a novated lease better than a car loan?
For an employee with an employer that offers salary packaging and who is purchasing an eligible EV, a novated lease almost always delivers a better financial outcome than a standard car loan because of the combined FBT exemption and income tax savings. For a petrol vehicle, the comparison is closer and depends on your salary, vehicle price and how much of the vehicle cost is offset by the ECM post-tax contribution. We model both options for your specific situation before you commit so you can see the actual numbers side by side.
Can I include running costs in my novated lease?
Yes. Registration, comprehensive insurance, servicing, tyres and fuel or electricity are bundled into the lease and deducted from your pre-tax salary. This is one of the key advantages of a novated lease over a car loan, where running costs are paid from after-tax income separately.
What happens at the end of a novated lease?
At the end of the lease term, you have several options. You can pay the residual (balloon) amount and own the vehicle outright. You can refinance the residual into a new short-term loan. You can trade the vehicle toward a new novated lease on a replacement vehicle. Or you can return the vehicle to the finance company to settle the residual. Most employees either pay the residual or roll into a new lease on a newer vehicle.
How long does it take to set up a novated lease?
Once your employer confirms salary packaging is available and you have selected a vehicle, the novated lease application typically takes 5 to 10 business days from application to approval. Payroll setup with your employer adds a few days depending on the employer's pay cycle. Total time from initial conversation to first salary deduction is typically 2 to 4 weeks.
Why Choose Australian Finance & Loans for Your Novated Lease
Independent broker: we compare novated lease options across multiple providers and finance structures. We are not a novated lease company selling our own product. We have no incentive to recommend a novated lease if another structure would serve you better.
Honest modelling: we calculate the actual savings for your specific salary, vehicle and lease term before you commit. If a novated lease does not save you money compared to a standard car loan, we tell you.
Full product range: if a novated lease is not the right fit, we can arrange a standard car loan, a chattel mortgage for business use, or a personal loan instead. One broker, every option.
EV specialists: we understand the FBT exemption rules, the LCT threshold, the PHEV cutoff, the RFBA implications and the review timeline. We give you the full picture, not just the headline savings number.
50+ lenders through the COG Aggregation network, part of ASX-listed COG Financial Services (ASX: COG), Australia's largest asset finance broker network.
Melbourne-based team with national reach across all states and territories.
Call 1300 194 926, email info@australianfinanceloans.com or book a call to get started.
