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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.
Let’s look step-by-step at how a novated lease works:
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
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) |
|
Total tax saving during lease | $15,714 |
Regular driveaway price | Upfront novated lease GST saving | Total weekly cost | Runnings costs included in weekly cost (with GST saving) | Total tax saving during lease | |
---|---|---|---|---|---|
$68,314 | -$6,109 | $220 |
| $39,198 | |
$64,814 | -$5,791 | $212 |
| $37,552 | |
$73,898 | -$6,191 | $372 |
| $18,096 | |
MG ZS (Excite) | $23,990 | -2,039 | $165 |
| $14,071 |
$59,985 | -$5,186 | $302 |
| $15,025 | |
$52,113 | -$4,637 | $180 |
| $32,133 | |
MG4 (Essence) | $49,709 | -$4,419 | $172 |
| $30,794 |
$85,189 | -$6,191 | $268 |
| $47,588 | |
Cupra Born (5-Seat Hatch) | $64,490 | -$5,762 | $214 |
| $37,890 |
$66,150 | -$5,715 | $342 |
| $17,750 | |
$44,482 | -$3,834 | $250 |
| $15,738 | |
$74,910 | -$6,191 | $241 |
| $42,892 | |
Kia EV6 (GT-Line AWD) | $93,995 | -$6,191 | $292 |
| $51,646 |
$49,709 | -$4,419 | $174 |
| $31,114 | |
Kia Niro (EV GT-Line) | $75,395 | -$6,191 | $241 |
| $42,580 |
Polestar 2 (Standard Range) | $70,951 | -$6,191 | $228 |
| $40,539 |
Mazda BT-50 (XTR 4X4 B30E Dual Cab) | $64,950 | -$5,611 | $338 |
| $17,771 |
BMW iX1 (XDrive30 M Sport) | $91,930 | -$6,191 | $294 |
| $52,257 |
Mazda CX-60 (GT PHEV) | $87,391 | -$6,191 | $280 |
| $49,621 |
Hyundai Tucson (FWD NX4) | $39,206 | -$3,368 | $230 |
| $15,714 |
GST saving on the vehicle (up to $6,191)
Pay for car and running costs with pre-tax salary
EV novated leases are exempt from FBT
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:
I always recommend people to consider all of the novated lease pros and cons before committing.
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.
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:
Read our in-depth guide on novated leasing versus car loans.
Feature | Novated Lease | Car 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 |
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:
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.
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.
You have three options available at the end of your novated lease:
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.
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:
If you don't have the strongest credit, read our explainer on how to get a novated lease with bad credit.
You can generally qualify for a novated lease if you are:
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 STARTEDThe 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.