Most people hear "novated lease" and assume it's some complicated finance product only accountants understand. It's actually pretty straightforward once you know how the payments are structured. And when you explore the potential benefits available through a Novated Lease, it tends to get a lot more interesting.
Our Easi experts have broken down novated leases into the bare basics. We’ll take you through how novated lease payments work, what they include, and what to watch out for when financing your new car.
What are Novated Lease Payments?
A novated lease payment is a regular deduction (usually fortnightly) that your employer takes directly from your salary to cover the cost of your car. That deduction covers two things: the finance rental on the vehicle, and a budget for your running costs.
Because a portion of the deduction may come from pre-tax salary, a Novated Lease may provide tax benefits. Easi has been helping Australians access this benefit since 1992, and it remains a popular employee benefit for eligible employees.
How Novated Leasing Works in Australia
Under a novated lease arrangement, three parties are involved: you (the employee), your employer, and a leasing provider. Your employer agrees to make the lease payments on your behalf directly from your pay. If you leave the job, the lease typically moves with you to your new employer.
The payments are split into a pre-tax component and, for most petrol or diesel vehicles, a small post-tax component. That post-tax portion is called the Employee Contribution Method (ECM), and it's used to offset Fringe Benefits Tax (FBT) liability. The ATO sets the FBT rates and thresholds that apply here.
Electric vehicles that were first held and used after 1 July 2022 and sit below the Luxury Car Tax threshold ($91,661 for fuel-efficient vehicles in 2026-27) are exempt from FBT entirely. That means eligible electric vehicles can be funded entirely through pre-tax salary, which can provide even further tax benefits .
What's Actually Included in Your Novated Lease Payments
This is where novated leasing gets genuinely useful. Your payments don't just cover the car finance. They also bundle in your car running costs, so you're not hit with unexpected bills throughout the year.
A typical novated lease package covers:
Finance rental (principal and interest on the vehicle)
Fuel or charging costs
Comprehensive motor vehicle insurance
Maintenance and servicing
Eligible employees can also benefit from GST savings on the vehicle purchase price and running costs. So your deductions are calculated on GST-exclusive amounts, which effectively gives you a 10% discount on the car and its ongoing costs.
There are also some one-off fees to be aware of, such as establishment fees and document fees. These vary by provider, so ask our team up front to find out more.
How to Calculate Novated Lease Payments
To calculate novated lease payments accurately, you need a few key pieces of information:
Purchase price including on-road costs (ex-GST for the salary packaging calculation)
Lease term (1 to 5 years)
Estimated kilometres per year (used to budget fuel, tyres and servicing)
Your marginal tax rate (anywhere from 19% to 47%)
The lease term also determines your residual value (sometimes called the balloon payment). This is the amount owing at the end of the lease, set by the ATO based on a fixed percentage table. For example, a 5-year lease carries a residual of 28.13% of the original vehicle value. You can read more in our residual value guide.
Use our novated lease calculator to find out an accurate estimate. It's free, takes about two minutes, and gives you a realistic picture based on your salary and the car you want.
How a Novated Lease May Compare
Yes, though how much depends on your personal circumstances. The higher your marginal tax rate, the more you stand to gain.
We’ve set up a real-world example to give you a clearer picture:
An employee on $90,000 a year leases a Tesla Model Y RWD over five years. The entire package is salary-sacrificed pre-tax. Over the lease term, the income tax saved comes to approximately $8,122 per year (at the 37% bracket including Medicare). This example illustrates how a Novated Lease may compare with other vehicle funding options under a defined set of assumptions.
For a comparable petrol vehicle (the Toyota Landcruiser Prado GX) subject to Fringe Benefits Tax, the estimated tax benefits are typically lower under this example scenario. The package is split between pre- and post-tax contributions to offset the Fringe Benefit Tax liability, and the net tax saving is closer to $4,651 per year. That difference is a big part of why many of the new electric vehicles delivered in Australia in recent years are being were funded through novated leases.
Benefits, Downsides and Things to Watch With Novated Leases
The benefits are genuine:
One predictable payment covers finance, rego, insurance, maintenance and tyres.
No logbook required, even for 100% personal use.
GST savings on the vehicle and running costs.
Potential fleet and bulk-buy discounts of 3-10% on the purchase price.
Access to the Electric Vehicle ‘Fringe Benefits Tax’ exemption, currently in place in its current state until least 31 March 2027, and not fully disappearing until 2029.
But there are real things to consider:
If you resign or are made redundant, break fees may apply.
The interest rate can be slightly higher than that of a secured car loan.
You're responsible for the residual value at the end of the lease.
The arrangement can affect your borrowing capacity for a home loan.
If you're unsure how this fits your situation, speak with a financial adviser or one of our expert consultants to gain a clearer picture.
What vehicles can be novated?
New cars, demo vehicles and used cars are all eligible, provided the vehicle will be less than 12 years old at the end of the lease term. That covers most passenger cars, SUVs, utes (under one tonne payload) and light vans. Electric, hybrid, petrol and diesel vehicles all qualify, though plug-in hybrid (PHEV) vehicles lost their FBT exemption from 1 April 2025.
Vehicles above the Luxury Car Tax threshold can still be novated, but they attract higher Fringe Benefits Tax and don't benefit from the Electric Vehicle discount. Heavy commercial vehicles and motorcycles are generally outside the scope of a standard novated lease arrangement.
For a detailed look at how the ATO treats leased vehicles, see the ATO's car leasing and FBT guidance.
Explore the Potential Benefits of a Novated Lease
Novated lease payments are designed to make car ownership simpler, more predictable, and more tax-effective. By bundling your finance and running costs into one regular salary deduction, a Novated Lease can simplify vehicle budgeting and potentially reduce your taxable income.
Ready to see what you could save? Get a quote or speak with our professional team to compare your options and find out more.
Frequently Asked Questions
What is a self-managed novated lease?
A self-managed novated lease lets you organise your own finance directly with a lender, while your employer's salary packaging provider still handles the payroll deductions and FBT reporting. You may save on interest compared to a standard novated lease, but you typically miss out on fleet discounts and fuel card benefits. It's worth comparing the total cost of both options before deciding.
If I get a novated lease, who owns the car?
The finance company holds legal ownership of the vehicle during the lease term. You have full use of the car, including for personal use. Once you pay out the residual value at the end (or refinance it), legal ownership transfers to you.
What happens to my novated lease if I change employers?
When changing jobs, the novated lease can usually be re-novated to your new employer. If that's not possible, you may need to pay out the lease, refinance it, or terminate early, which can involve break costs.
Do novated leases have to be for the company car?
Not at all! Novated lease vehicles are fundamentally owned by the employee or the leasing provider, not the business. Employees are completely free to use the vehicle for 100% personal use, such as weekend trips, running errands, and commuting to work.
A Novated Lease can provide tax benefits even where the vehicle is used entirely for personal purposes.
