What is a novated lease?
A novated lease is best explained as a form of car finance that has a three-way agreement between an employer, employee, and a novated lease provider.
It allows an employee to finance a vehicle as part of their salary — known as salary packaging — and benefits both the employee and employer, even where the vehicle is entirely for personal use.
Your employer makes payments to the novated lease provider from your pre-tax salary, meaning that you can literally save thousands of dollars in income tax.
With a novated lease, you can include all the running costs of the car as well as purchasing a car without having to pay the GST. On a $50,000 car, that’s a GST saving of $4,545.
In the three-way agreement each party has the following roles to play
The employer agrees to make regular, automated payroll deductions from the employee’s salary to the leasing company
The employee agrees to have those salary deductions in exchange for the use of the vehicle. The vehicle can be used for business purposes, or entirely for personal use.
And novated leasing companies...
Procure the vehicle, establish the lease and manage the administrative, contractual and compliance aspects of the transaction.
The top 10 novated lease benefits
Novated leases are a ‘win-win’ for both employees and employers. Employees benefit from ex-GST pricing on a car for personal use, and can reduce their income tax liabilities. Employers can offer novated leasing as an incentive, at no cost to the business.
In summary, the best benefits of a novated lease in Australia include:
1
No GST payable on the car
2
No GST payable on running costs
3
GST can be claimed by the employer as a tax credit
4
Reduce payroll tax for employers
5
No obligation on the part of the employer to either the vehicle or the lease
6
A cost-effective way of acquiring a vehicle
7
Employee income tax savings
8
Fully maintained personal vehicle — including fuel, insurance, servicing, repairs, roadside assist and registration
9
100% personal use of the vehicle
10
Option to de-novate and re-novate if changing employers
Massive tax incentive for EV novated leases
Since 2022, novated leases on eligible electric vehicles and plug-in hybrids have been exempt from fringe benefits tax. This means you can now pay for an EV and all running costs using 100% pre-tax income. This turbocharges your savings and makes it cheaper to drive a $68K Tesla Model Y than a $40K Hyundai Tucson.
How much could you save with a novated lease?
See below estimated novated lease savings on some of Australia's top-selling cars. These examples are based on a driver in NSW with an annual pre-tax salary of $120,000 travelling 15,000km/year. Vehicle pricing and novated lease estimates correct as at October 2023. See your own estimated savings by getting a fast, personalised quote.
Potential novated lease savings on some of Australia's top-selling cars
Tesla Model Y (RWD)
- 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
Tesla Model 3 (RWD)
- 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
Ford Ranger (XLT 4X4 Double Cab)
- 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
Toyota RAV4 (Cruiser AWD Hybrid)
- 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
BYD Atto 3 (Extended Range)
- 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
Volvo XC40 (Recharge Pure Electric)
- 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
Isuzu D-Max (LS-U 4X4 Crew Cab)
- 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
Mazda CX-5 (MAXX SPORT)
- 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
Mitsubishi Outlander (Exceed PHEV 5+2 Seat)
- 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
MG ZS EV (Essence)
- 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
What are the interest rates on a novated lease?
Interest rates on a novated lease are generally applied between 7% and 12%. The interest rate will be influenced by:
- The price of the vehicle
- The age of the vehicle
- Purchasing from a private seller or dealership
How to get the best deal on a novated lease
To get the best novated lease deal, make sure you choose a leasing company that passes on their bulk-buying car discounts. This means you will also get a discount off the regular car price and can save more money on your vehicle purchase.
How to choose a novated car lease
You have the choice of fully maintained and non-maintained. The key difference is that, with a fully maintained novated lease, you package all the running costs of the vehicle into your pre-tax payment, which further saves you money. This is by far the most popular choice.
The fully maintained option includes:
- Registration
- Insurance
- Servicing costs
- Replacement tyres
- Petrol costs
- Vehicle repairs
These costs will be estimated based on the number of kilometres you intend to drive each year. If your circumstances change, these estimates can be updated throughout the term of your lease. Speak to your employer to determine the type of novated lease they offer, and the implications of any Fringe Benefits Tax (FBT) liability.
Money tip: You will also pay no GST on running costs for your vehicle under a novated lease.
Most popular cars that get novated in 2023
- Ford Ranger
- Mazda CX-5
- Toyota RAV-4
- Mitsubishi Triton
- Hyundai Tucson
- Mitsubishi Outlander
- Toyota Landcruiser Prado
- Hyundai i30
- Isuzu Ute D-MAX
Source: fleetautonews.com.au.
The top 5 accessories novated lease owners get
Yes, you can add accessories to your novated lease cars. These can be bundled in to the purchase price of the new car.
- Floor mats
- Window tints
- Roof racks
- Tow bar
- Side steps
Fully maintained versus self-managed novated lease
| Fully maintained | Self-managed (non-maintained) |
|---|---|
Obtained from novated leasing companies | Obtained directly from banks |
Includes all maintenance and running cost expenses | Only provides funding for the vehicle itself, and no additional running costs |
Additional vehicle add-ons and services can be purchased GST-free when acquiring the vehicle | Only of value to the employee if the employer is paying for running costs on the vehicle |
FBT liability balanced using post-tax salary contributions by the employee | Any FBT liability is handled by the employer |
Novated lease vs car loan compared
| Novated lease | Car loan | |
|---|---|---|
Amount | $5,000 - $150,000 | $5,000 - $100,000 |
Terms | 6 months - 5 years | 2 - 7 years |
Interest rates | From 7.00% | From 7.00% |
Fees | Low | Medium |
Purpose | Salary packaging a vehicle | Financing a personal vehicle without salary packaging |
A novated lease and a car both provide immediate full ownership of the vehicle, and there are no restrictions on how the vehicle is used for personal or business purposes.
The main difference between a novated lease and a car loan is in how the vehicle is financed:
A fully maintained novated lease is only available through novated lease providers, and includes both the vehicle finance cost and its related operating expenditure in the total repayments and paid by the employer from the employee’s salary.
A car loan is available from banks, dealerships, car loan lenders, and vehicle brokers. The car loan can include on-road costs and insurance, but the running costs are entirely the borrower’s responsibility, and are not included in the loan amount. Payments are made directly to the financier from the borrower
New & used cars
Whilst the vast majority of novated leases are for new cars, it's not actually a requirement to do so. You can buy any used car. (To get the GST savings though, you'll need to buy a used car from a dealer.)
Novated leasing GST benefits
By using a novated lease, an employee can acquire a vehicle without paying GST (Goods and Services Tax) on it. As the leasing company buys the vehicle to lease, the borrower will not pay GST on the initial purchase price of the vehicle.
Any GST included in the lease charges can be claimed by the employer, which is then passed on as savings to the employee leasing the vehicle.
The saving is 10% of the vehicle's purchase price up to a maximum saving of $6,334.
Do I have to drive a minimum number of kilometres?
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.
This is one of the key reasons that makes a novated lease totally worth it.
What happens at the end of a novated lease?
You have a few options available at the end of your novated lease term:
- 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
In some cases, you may be able to return the vehicle to the novated leasing company without paying any residual amount
Balloon or ‘residual’ amounts are pre-determined lump-sum repayments, which are paid at the end of the novated lease term. Residual payments reduce regular repayments by including a higher final payment. Learn more here.
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.
At the end of your novated lease, you will need to either pay the residual amount owing, or consider refinancing the vehicle under a new agreement.
Novated lease terms and balloon amounts
| Lease length | Residual value percentages |
|---|---|
12-month lease | 65.63% |
24-month lease | 56.25% |
36-month lease | 46.88% |
48-month lease | 37.5% |
60-month lease | 28.13% |
How to qualify and choose a novated vehicle
In Australia, there are around 40-50 novated leasing companies that can work with you and your employer to establish your novated lease. You can qualify 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
- Over 21 years of age. On rare occasions, lenders may approve applicants between 18 and 21 years old
You can essentially have any new vehicle that best suits you and your lifestyle — from SUVs to 4WDs and sports cars.
Used cars are also possible but cannot be more than 15 years old at the end of the term. For example, you could buy a 10-year-old vehicle and have a 5-year term.
There are only two restrictions to consider:
- It needs to be a passenger vehicle (including utes)
- The vehicle’s maximum payload cannot exceed 1 tonne
You can even use a novated lease to finance used cars (including buying a car from a private seller), provided the vehicle is not older than 15 years at the end of your lease term. For example:
- You choose a used car which is seven years old
- Your novated lease term is five years
- Your car will be 12 years old at the end of the term
Novated lease with bad credit
Getting a novated lease is still a finance contract and you will be required to be credit checked. This will show the lender any bad credit history. The positive with novated leasing though is that you still have a high likelihood of being approved because it's your employer making the repayments to the financier.
Money tip: When you buy a car from a private seller, there is no GST so you will not get this benefit.
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.
