Fair Dinkum Money

Novated lease

Novated lease vs car loan

Whole-of-term cost of salary packaging versus borrowing, with GST savings, the employee contribution method for FBT, and the residual payout included — so both paths end with you owning the car outright.

$
$/yr

ATO minimum residual: 28.13%

$/yr

Fuel/charging, insurance, rego, servicing, tyres

% p.a.
% p.a.

Usually higher than a loan — check the effective rate, not the headline

Battery or hydrogen EVs valued under $91,661 (the fuel-efficient LCT threshold) are FBT-exempt, so the whole package comes out pre-tax. Plug-in hybrids no longer qualify.

Cheaper option over 5 years

Novated lease by $9,175

Novated total $86,951 vs loan total $96,125, both including running costs and ending in full ownership

Line itemNovated leaseCar loan
Finance repayments /yr$10,393$13,225
Running costs /yr$5,455 (ex GST)$6,000
Pre-tax salary deduction /yr$4,847—
Post-tax (ECM to wipe FBT) /yr$11,000—
Income tax saved /yr−$1,551—
Net cost per year$14,296$19,225
Residual payout at end (incl GST)$15,472—
Total 5-year cost$86,951$96,125

Model assumes FY2026-27 tax rates, GST credits passed through by the employer (capped at $6,353, one-eleventh of the car limit), the 20% statutory FBT rate on the drive-away price fully offset via employee contributions, and that you buy the car at the ATO minimum residual. It ignores the one-third base-value reduction after four FBT years and any HELP repayment impact. Lease admin and packaging fees vary by provider — add them to running costs for a fair comparison. The government has announced (not yet legislated) that for leases entered from 1 April 2027 the full EV exemption applies only under $75,000, with a 25% FBT discount up to the LCT threshold, and a 25% discount for all eligible EVs from 1 April 2029; leases signed before each date keep their current treatment.

How the comparison works

For the lease, the calculator finances the car price less the GST credit down to the ATO minimum residual, adds running costs ex-GST, and splits the annual package into pre-tax and post-tax parts. The tax saved on the pre-tax part comes off the cost, and the residual (plus GST) is added at the end.

For the loan, it finances the full price to zero over the same term and adds running costs including GST, all paid from after-tax income. Both paths finish with you owning the car outright, so the totals are directly comparable.

Before you sign

  • Ask for the effective interest rate, not just the weekly cost.
  • Add lease management and packaging fees to running costs.
  • Check what happens if you change jobs: the lease usually transfers back to you.
  • Get a quote from more than one provider; residuals and rates vary.

Frequently asked questions

What is a novated lease?

A car lease between you, your employer and a finance company. Your employer pays the lease and running costs out of your salary, partly before tax, and you get the car. At the end you pay a residual (balloon) amount to own it, or refinance.

Is a novated lease cheaper than a car loan?

It depends on your tax rate, the car's price, whether it is an EV, and the finance rate. Petrol cars on a novated lease often come out close to a loan once fringe benefits tax is paid through post-tax contributions; eligible EVs usually come out well ahead. The calculator compares the full cost over the term with both options ending in you owning the car.

Which electric cars are exempt from FBT?

Battery electric and hydrogen fuel cell cars valued under the luxury car tax threshold for fuel-efficient vehicles ($91,661 in 2026-27), first held and used on or after 1 July 2022. Plug-in hybrids stopped qualifying from 1 April 2025, except under arrangements already in place before that date.

What is the employee contribution method?

For cars that aren't FBT-exempt, part of the package is paid from your after-tax salary instead of pre-tax. Those post-tax contributions reduce the taxable value of the benefit to nil, so your employer pays no FBT. The calculator uses the statutory 20% of the car's value as the post-tax amount.

What is the residual payment?

The balloon amount you pay at the end of the lease to own the car. The ATO sets minimum residuals by term, from 65.63% of the financed amount after one year down to 28.13% after five years. GST is added when you pay it.

Do I get the GST back on the car?

Your employer can claim the GST on the purchase price and pass it on, so less is financed. The credit is capped at one-eleventh of the car limit, which is $6,353 in 2026-27. Running costs are also packaged ex-GST.