Novated Lease Calculator (EV)

What is a Novated Lease? A Complete Australian Guide

A novated lease is one of Australia's most popular salary packaging benefits — and for employees considering an electric vehicle, it's currently one of the best tax deals available anywhere in the tax code. Yet many Australians either don't know it exists, or misunderstand how it works. Here's the full picture.

How a novated lease works (step by step)

1. You choose a car. Any make or model can usually be novated, but EVs get the biggest tax advantage (see below).
2. Finance company buys the car. A salary packaging provider (like Maxxia, RemServ, McMillan Shakespeare, or SG Fleet) arranges the finance. You don't own the car — you lease it.
3. Your employer deducts payments. Lease repayments and running costs (fuel/charging, rego, insurance, servicing, tyres) are deducted from your gross salary before tax. This is the key benefit: you're paying with pre-tax dollars.
4. Your taxable income drops. You pay income tax on a lower salary figure, which means less tax withheld each fortnight.
5. At lease end: three choices. Pay the residual (balloon) to own it outright, refinance the balloon into a new lease, or return the car.

The "novation" part refers to the legal transfer: your lease obligation is "novated" to your employer, who takes on responsibility for payments while you're employed there. If you leave, the lease reverts to you personally.

The EV FBT Exemption — Why Electric Cars Are a Game-Changer

Since 1 July 2022, the Australian Government has exempted eligible EVs from Fringe Benefits Tax (FBT) when packaged under a novated lease. This changes the maths dramatically.

Without the exemption, employers must pay FBT on the value of car benefits provided to employees. This FBT liability is typically passed back to the employee via the salary packaging arrangement, eating into the tax savings. With the exemption, there's no FBT at all — meaning the full pre-tax benefit flows through to you.

Which EVs qualify for FBT exemption?

• Battery Electric Vehicles (BEVs) — fully electric, zero emissions (e.g. Tesla Model 3, BYD Seal, Polestar 2, Hyundai IONIQ 6)
• Plug-in Hybrid Electric Vehicles (PHEVs) — generally only where the vehicle was used or available for private use before 1 April 2025 and covered by a financially binding commitment continuing on or after that date
• Hydrogen fuel cell vehicles
• Luxury car tax must never have been payable on the car. For 2025-26, the fuel-efficient LCT threshold is $91,387

Note: the key test is whether luxury car tax was ever payable on the importation or sale of the vehicle. In practice, that usually means checking it sat under the fuel-efficient threshold when first sold retail.

Tax Savings Examples: $80k, $120k, $150k Salary

The pre-tax savings from a novated lease scale with your marginal tax rate. Here are real-world estimates for a $65,000 BEV novated over 5 years with $5,500/year in running costs included in the package:

Estimates only. Assumes FBT-exempt EV, 5-year lease, $65,000 vehicle, 30% balloon, ~6.5% interest rate. Marginal rates include 2% Medicare levy. Tax savings represent income tax you don't pay because your taxable income is lower.

At $80k, a simplified estimate uses a 32% marginal rate including Medicare levy. At $120k, it uses 32% as well under 2025-26 resident rates. The GST saving is separate again, and the actual benefit depends on how the provider structures the lease and what fees sit inside it.

Running Costs: EV Novated vs Petrol Outright vs EV Outright

Total cost of ownership over 5 years (Melbourne, average 15,000 km/year):

The novated lease "net cost" excludes the balloon payment (which represents car equity you keep, not a sunk cost). Figures are rough estimates; your actual numbers depend on salary, interest rate, fuel prices, and specific vehicle running costs.

The key insight: with a novated lease on an FBT-exempt EV, you're essentially using pre-tax dollars to fund what would otherwise be a post-tax purchase. The income tax you don't pay is real money — and for most employees on $80k+, it's the single biggest factor in the total cost comparison.

Common Novated Lease Mistakes

These are the traps that trip up even savvy employees:

1. Ignoring the salary packaging admin fee

Providers typically charge $150–$300/year in admin fees. This is a small cost relative to the tax saving, but factor it into your comparison. Some employers subsidise this fee.

2. Overestimating your running costs

The packaged running costs (charged to your pre-tax salary) should match your actual annual costs. If you package $8,000/year but only spend $5,500, the excess isn't refunded — it typically goes into a buffer account. Underestimating means you pay the shortfall from post-tax income. Get a realistic estimate before you sign.

3. Not understanding what happens if you leave your job

If you resign or are made redundant, the novation ends and the lease becomes your personal liability. You'll need to continue repayments from post-tax income, or (more commonly) your new employer takes over the novation, or you refinance privately. Check the portability terms before signing — most providers make this relatively straightforward if you find a new employer quickly.

4. Choosing a car over the LCT threshold

EVs where luxury car tax was payable do not qualify for the exemption. For 2025-26, the fuel-efficient threshold is $91,387. If the car you want is over the limit, run a separate calculation to see if a non-exempt novated lease still makes sense at your salary level.

5. Ignoring the balloon payment

A 30% balloon on a $65,000 car = $19,500 due at the end of 5 years. Lower repayments are appealing, but make sure you have a plan for that balloon: save for it progressively, refinance it, or trade the car and roll the equity. Don't be surprised by it at year 5.

6. Assuming it works for everyone

Novated leases are most valuable for employees (not self-employed), those earning above $45,000 (higher marginal rate = bigger saving), and those with a genuine car need. If you rarely use a car or prefer a cheap commuter, run the numbers first — the admin overhead may not be worth it for a $15,000 vehicle.

Is a Novated Lease Worth It? Honest Pros and Cons

Pros

• Significant tax savings — paying with pre-tax dollars is a 32.5–47% discount (depending on your tax bracket)
• GST saving on purchase — the packaging provider claims the GST, saving ~$5,900 on a $65k car
• Running costs included pre-tax — fuel/charging, rego, insurance, servicing all paid from pre-tax dollars
• No deposit required — unlike buying outright or getting a car loan
• FBT-exempt EVs — the exemption currently makes BEVs the strongest case for novated leasing in Australian history
• Flexibility at end of lease — keep, refinance, or return

Cons

• Job dependency — the benefit stops if you leave your employer and your new employer doesn't offer salary packaging
• Balloon payment liability — you need a plan for the residual at lease end
• Running cost budgeting — over or underestimating creates issues
• Not suitable for low earners — below ~$45,000 the tax saving is minimal
• Administrative overhead — dealing with a third-party packaging provider adds complexity
• You don't own the car — modifications, personalisation, and usage restrictions may apply
• PHEV exemption narrowed — fresh arrangements from 1 April 2025 are generally no longer FBT exempt unless grandfathering rules are met

The verdict

For an employee earning $80,000+ with a need for a car, and especially for those considering an FBT-exempt BEV, a novated lease is almost certainly worth it. The combination of income tax savings, GST savings, and pre-tax running costs creates a genuinely compelling financial case that's hard to replicate through any other legal structure. The key is doing the maths on your specific situation — use the calculator above and then get a personalised quote from a salary packaging provider.