For many Australian employees, a car is the second biggest purchase they will ever make, yet most finance it with “after-tax” dollars. You earn your wage, the ATO takes a cut, and you spend what’s left on your car loan, fuel, and insurance.
A Novated Lease flips this script. It is a three-way agreement between you, your employer, and a finance company that allows you to pay for your car and its running costs using a combination of your pre-tax and post-tax salary.
Because the math involves income tax brackets, GST credits, and Fringe Benefits Tax (FBT), it is nearly impossible to calculate manually. This is where a Novated Lease Calculator becomes your most valuable tool.
1. Why You Need a Calculator (The “Black Box” of Savings)
A novated lease calculator isn’t just a repayment estimator; it is a tax-efficiency engine. Unlike a standard car loan calculator, which only asks for Interest Rate and Loan Amount, a novated lease calculator requires details about your salary and driving habits.
It performs three simultaneous calculations to show your true “take-home” cost:
- Income Tax Savings: How much less tax you pay because your taxable salary is lower.
- GST Savings: The 10% saving on the car purchase price and running costs (fuel, tires, servicing).
- FBT Offset: Balancing your contribution to ensure you don’t end up with a tax bill at the end of the year.6
2. How to Use a Novated Lease Calculator
Most calculators follow a standard three-step input process. Here is what you will need to enter and why it matters.
Step A: Your Employment Details
- Input: Your gross annual salary (e.g., $90,000).
- Why: This determines your marginal tax rate. The higher your tax bracket (e.g., 37% or 45%), the more money you save, because every dollar deducted from your pre-tax salary saves you more in tax.
Step B: The Vehicle Details
- Input: Car price, make, and model.
- Why: This calculates the Residual Value (the lump sum you must pay at the end of the lease to own the car) and the Luxury Car Tax status.
- Critical Input: Is it an Electric Vehicle (EV)? (This currently triggers a massive government exemption—more on this below).
Step C: Running Costs
- Input: Estimated annual kilometres (e.g., 15,000km).
- Why: The calculator estimates your annual spend on fuel, registration, insurance, and tyres. It then bundles these into your single regular payment.
3. Real-World Case Study: The Calculator in Action
Let’s look at a practical example to see how the calculator translates inputs into savings.
The Scenario:
- Client: “Sam”, a Project Manager earning $110,000/year.
- Car: A new SUV costing $50,000 (drive away).
- Comparison: Novated Lease vs. Standard Car Loan (paid with post-tax salary).
What the Calculator Shows:
| Vehicle Purchase Price | $50,000 | $45,454 (GST Savings) |
| Fuel & Maintenance | Paid with after-tax cash | Paid with pre-tax income |
| Income Tax Paid | ~$27,000 | ~$23,500 (Tax Reduced) |
| Weekly Cost | ~$350 (Loan + Running Costs) | ~$280 (Reduction in take-home pay) |
| Annual Savings | $0 | ~$3,600+ |
The Result:
By running the numbers, Sam sees that even though the lease has administrative fees, the $3,500+ tax saving and the $4,500+ GST saving on the car price make the Novated Lease significantly cheaper than a standard loan.
4. Two “Secret” Savings the Calculator Reveals
When you view the detailed breakdown on a calculator results page, look for these two specific line items:
- The “GST Input Tax Credit”
Because the finance company technically buys the car (not you), they claim the GST back. On a $50,000 car, that is a roughly $4,545 instant discount on the purchase price.- Calculator Check: Ensure the “Amount Financed” is lower than the retail price of the car.
- The “Employee Contribution Method” (ECM)
For Non EVs the calculator splits your payment into “Pre-tax deduction” and “Post-tax deduction.”
Why? Cars provided by employers are subject to Fringe Benefits Tax (FBT).
The Hack: By paying roughly 20% of the car’s value using post-tax dollars (the ECM), you offset the FBT to $0. A good calculator automatically optimizes this split, so you pay the absolute minimum tax required legally.
5. The “EV Exception”: Why You Must Check the EV Box
If you are considering an Electric Vehicle (EV), the calculator is essential because the rules changed drastically on the 1st of July 2022.
The Australian Government introduced an FBT Exemption for eligible EVs below the Luxury Car Tax threshold ($91,387 for electric vehicles).
How does this change the calculator output?
- Standard Car: You pay some pre-tax, some post-tax to avoid FBT.
- Electric Car: You pay 100% of the cost from your pre-tax salary.
Example: A $60,000 Tesla Model Y might cost a user on a $120k salary roughly the same in weekly take-home pay as a $40,000 Mazda CX-5, simply because the Tesla is paid entirely with pre-tax dollars. Always toggle the “EV” switch on the calculator to see this comparison.
6. Important Calculator “Watch-Outs”
Calculators are estimates. When using one, keep these variables in mind:
- Residual Value: The calculator will show a “balloon payment” at the end of the term (usually 3-5 years). You must have a plan to pay for this if you want to keep the car. It is not “free money”; it is deferred debt.
- Admin Fees: Ensure the calculator includes the “Management Fee” charged by the leasing company (often included in the weekly figure).
- Interest Rates: Online calculators often use a default interest rate. Your actual rate may vary based on your credit score.
Next Steps for You
If you are ready to explore this, try our Novated Lease Calculator by clicking HERE.
