How a novated lease works
A novated lease is a three-way deal: a financier leases you the car, and your employer agrees to make the payments out of your salary. The lease payments and running costs come out before income tax, and because your employer claims back the GST, the deductions are based on ex-GST prices, including up to $6,353 of GST off the car's purchase price. Those are the two genuine sources of saving. Everything else (interest rate, fees, residual) works against you, which is why the answer isn't automatic.
For cars that aren't FBT-exempt, packaging companies use the Employee Contribution Method: 20% of the car's value each year is deducted after tax instead of before, which cancels out the fringe benefits tax the employer would otherwise pay. The calculator models this properly rather than pretending the whole package is pre-tax.
The residual "balloon"
A novated lease never pays the car off completely. The ATO sets minimum residual values, so at the end of the term you still owe a large slice of the car's value, plus GST if you buy it:
| Lease term | Minimum residual (% of amount financed) |
|---|---|
| 1 year | 65.63% |
| 2 years | 56.25% |
| 3 years | 46.88% |
| 4 years | 37.50% |
| 5 years | 28.13% |
A weekly figure that looks cheaper than a loan repayment usually looks that way because a third of the car is parked in the balloon. Every total in this calculator includes it.
EV FBT exemption: where it stands in 2026-27
- Battery EVs: still fully FBT-exempt if the car was first sold under the fuel-efficient LCT threshold ($91,661 in 2026-27) and first held and used on or after 1 July 2022. This is what makes EV novated leases so effective: the entire package comes out pre-tax.
- Plug-in hybrids: lost the exemption for new arrangements from 1 April 2025. Existing PHEV leases keep it only while the original binding commitment continues; extending or re-novating the lease ends it.
- Announced change (not yet law): in the May 2026 Budget the government announced the exemption will continue in full until 31 March 2027, then from 1 April 2027 apply fully only to EVs up to $75,000 (dearer EVs under the LCT threshold get a 25% FBT discount), stepping down to the 25% discount for all eligible EVs from April 2029. The announcement states existing leases won't be affected, one more reason timing matters.
An FBT-exempt lease still generates a reportable fringe benefit on your payment summary. It isn't taxed, but it counts towards HECS/HELP repayment income, Division 293 super tax and some means tests; check the flow-on with our HECS repayment calculator.
What we assume (and why you should check your quote)
- Lease payments are an annuity on the ex-GST price with the residual as a balloon; deductions are ex-GST for lease, running costs and fees.
- GST credit on the purchase is capped at $6,353 (1/11 of the 2026-27 car limit). Stamp duty and rego are treated as part of the drive-away price.
- Non-exempt vehicles: post-tax contributions of 20% of the drive-away price fully offset FBT (statutory formula).
- Running-cost prefills are rough estimates; replace them with your own figures.
- The loan option finances the full price with no balloon; the cash option ignores investment returns on the money.
- Quotes bundle interest, fees and margins differently, so always compare the total cost including the residual, not the weekly figure.
Frequently asked questions
What happens at the end of a novated lease?
You must deal with the residual (balloon): pay it out (plus GST) to own the car, refinance it into a new lease, or sell/trade the car and clear the residual from the proceeds. If the car is worth more than the residual, you keep the difference tax-free; if less, you cover the gap.
Does a novated lease affect my HECS/HELP repayments?
Only if the lease creates a reportable fringe benefit amount, which an FBT-exempt EV lease does. For non-exempt cars using the employee contribution method there is typically no reportable amount.
Can I get a novated lease on a used car?
Generally yes; financiers have age limits (often the car must be under a set age at lease end). For the EV exemption, a used EV qualifies only if luxury car tax was never payable on it: broadly, it was first retailed under the fuel-efficient LCT threshold and first held and used on or after 1 July 2022.
Sources
Figures on this page come from the following primary sources. The date is when we last checked the page against the source.
- Fringe benefits tax rates and thresholds (ATO), checked 25 August 2026.
- Electric cars exemption (ATO), checked 5 October 2026.
- Luxury car tax rate and thresholds (ATO), checked 27 July 2026.
- Car thresholds from 1 July (ATO), checked 27 July 2026.
- ATO ID 2002/1004: minimum residual values for leased cars (ATO), checked 27 July 2026.
Related calculators & guides
HECS/HELP repayment calculator: see how a reportable fringe benefit changes your compulsory repayment. EV FBT 2027 changes calculator: signing before or after 1 April 2027.PHEV novated lease calculator: fuel and charging costs, grandfathering, and PHEV vs EV. Salary sacrifice calculator: the other way to package your salary.
Guides: Novated lease vs car loan: is a novated lease worth it, with worked totals and the questions to ask about any quote.
Figures current as at 27 July 2026, verified against ATO published rates; see our methodology. General information only, not financial advice.