Worked totals: same car, three salaries
Total cost to own a $55,000 car over five years, residual and GST on the buyout included, using the same model and default assumptions as our novated lease calculator: 15,000 km a year, 9% lease rate, 7.5% loan rate, $468 a year in fees, and the ATO minimum residual.
| Car | Salary | Novated lease | Car loan | Paying cash | Lease vs loan |
|---|---|---|---|---|---|
| Battery EV (FBT-exempt) | $70,000 | $61,537 | $83,375 | $72,250 | $21,838 less |
| Battery EV (FBT-exempt) | $100,000 | $62,320 | $83,375 | $72,250 | $21,055 less |
| Battery EV (FBT-exempt) | $150,000 | $57,498 | $83,375 | $72,250 | $25,878 less |
| Petrol | $70,000 | $84,949 | $91,625 | $80,500 | $6,676 less |
| Petrol | $100,000 | $85,020 | $91,625 | $80,500 | $6,605 less |
| Petrol | $150,000 | $83,523 | $91,625 | $80,500 | $8,103 less |
The EV rows are the case where the marketing and the maths agree: the whole package comes out pre-tax with no FBT. The petrol rows are much closer, because the employee contribution method moves 20% of the car's price into after-tax deductions every year, and if you have the cash, buying the petrol car outright is cheapest of all in these examples (the cash column ignores the interest your money could earn instead). Change the lease rate by a couple of points or add a few hundred dollars of fees and the petrol result moves again. Run your own quote in the calculator; these are illustrations, not a recommendation.
How the two are structured
With a car loan, you borrow the full price, repay it from after-tax salary, and own the car outright at the end. There are no tax concessions, but also no fees beyond the loan itself, and nothing owing at the end of the term.
With a novated lease, a financier owns the car and your employer pays the lease and running costs out of your salary. Payments come out before income tax, prices are ex-GST because your employer claims the GST back, and at the end of the term you still owe the residual, an ATO-mandated balloon payment (28.13% of the amount financed on a five-year lease, more on shorter terms). On a $55,000 car over five years that's a residual of roughly $14,065, plus GST if you buy the car out.
Where the novated savings come from
- Pre-tax deductions. Every dollar deducted pre-tax saves you your marginal rate plus Medicare levy. On a $100,000 salary, $12,000 a year of pre-tax deductions saves about $3,840 in tax (32c per dollar) using the 2026-27 rates.
- GST off the car. The employer's GST credit takes up to $6,353 off the purchase price (2026-27 cap).
- GST off running costs. Fuel or charging, servicing, tyres and insurance run through the package at ex-GST prices.
Petrol, diesel and regular hybrid cars attract fringe benefits tax. Packaging companies neutralise it with the employee contribution method (20% of the car's value each year is deducted from your after-tax pay instead of pre-tax), which claws back a large part of the pre-tax benefit. Battery EVs first sold under the fuel-efficient luxury car tax threshold ($91,661 in 2026-27) are FBT-exempt, so the whole package stays pre-tax. That single difference is why EV novated leases stack up so much better than petrol ones.
Where the novated costs come from
- Interest rate. Novated lease rates typically run higher than advertised car loan rates, and quotes often don't state the rate at all; you have to back it out of the payments.
- Fees. Packaging or admin fees of a few hundred dollars a year, plus margins that can be built into insurance, servicing and other bundled running costs.
- The residual. The balloon isn't a saving; it's a deferred cost. A weekly lease figure that beats a loan repayment usually does so because a third of the car is parked in the residual.
The four traps in a typical comparison
| Trap | What to do instead |
|---|---|
| Comparing weekly lease cost to a weekly loan repayment | Compare total cost to own the car, residual and GST included |
| Lease bundles running costs, loan figure doesn't | Add the same running costs to the loan and cash scenarios |
| "Tax savings" quoted without the after-tax contributions | For non-EVs, net off the 20% employee contribution |
| No interest rate disclosed on the quote | Ask for the rate and the residual, and compare against a car loan quote |
When a novated lease usually isn't worth it
- Lower incomes. Below $45,000 taxable the saving per pre-tax dollar is small and flat fees are a bigger share of it.
- Uncertain employment. If you leave, the novation ends and the lease reverts to you: full payments from after-tax pay unless a new employer takes it on. For EVs, a change of employer also counts as a new commitment under the draft 2027 FBT rules.
- Quotes that hide the rate. A high embedded interest rate, admin fees or marked-up insurance can consume the whole tax benefit, on any car.
Five questions to ask about any quote
- What's the interest rate? If it isn't stated, ask, and compare it with a car loan quote for the same car.
- What are the fees? Annual admin or packaging fees, plus any establishment fee.
- What's the residual, and the total cost including it? A weekly figure means little without the balloon (see residual values).
- Are insurance and running costs at market rates? You can usually source your own insurance.
- What happens if I leave my job? Get the answer in writing.
Frequently asked questions
What salary do you need for a novated lease to be worth it?
There's no official minimum, but the tax saving scales with your marginal rate. From $45,000 of taxable income (the 30% bracket in 2026-27) each pre-tax dollar saves at least 32c including Medicare levy. Below that it is 17c (15% plus the levy), and flat fees take a bigger share. Compare the $70,000 and $150,000 rows in the table to see how much the bracket matters.
Is a novated lease worth it on a used car?
It can be. Financiers apply car-age limits, and a used EV only gets the FBT exemption if luxury car tax was never payable on it and it was first held and used on or after 1 July 2022. The maths is the same as for a new car: the savings must outrun the rate, fees and residual.
Does a novated lease affect HECS, family payments or child support?
An FBT-exempt EV lease creates a reportable fringe benefit amount. It is not taxed, but it is added to the income used for HECS/HELP repayments, Division 293, the Medicare levy surcharge and several means tests. Petrol cars under the employee contribution method usually have no reportable amount. The novated lease and HECS guide has the numbers.
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.
- ATO ID 2002/1004: minimum residual values for leased cars (ATO), checked 27 July 2026.
- Electric cars exemption (ATO), checked 5 October 2026.
- Luxury car tax rate and thresholds (ATO), checked 27 July 2026.
Related
Novated lease calculator: run the full three-way comparison with your quote. How FBT works on a novated lease: the employee contribution method in detail. Novated leases and HECS: why an FBT-exempt EV lease raises your repayment income.
Figures current as at 5 October 2026, verified against ATO published rates; see our methodology. General information only, not financial advice.