The novated lease remains one of the most powerful financial tools for Australian employees looking to acquire a new car. In 2025, however, the landscape of vehicle selection has been irrevocably changed by government incentives, making the choice of which car to lease as important as the decision to lease itself.
Choosing the wrong vehicle could cost you thousands in missed tax savings, while choosing the right one—particularly an eligible electric vehicle (EV)—can maximise your salary packaging benefits, drastically reducing your total cost of car ownership.
This comprehensive guide breaks down the essential factors for vehicle selection in 2025 and provides a step-by-step walkthrough of how to use a novated lease calculator to confirm your ultimate saving.
Part I: The New Rules of Vehicle Selection in 2025
The golden rule for novated leasing is simple: the greater the tax benefit, the more money you save. To maximise this benefit, you must focus on vehicle characteristics that either reduce your Fringe Benefits Tax (FBT) liability or lower your running costs.
1. The Electric Vehicle (EV) Imperative
The most significant factor influencing your choice in 2025 is the Zero or Low Emissions Vehicle (ZLEV) FBT Exemption. This Australian government incentive provides the most substantial savings currently available through a novated lease.
The Eligibility Criteria (The Golden Ticket)
For a car to be FBT-exempt, it must meet these criteria:
- Zero or Low Emissions: Must be a Battery Electric Vehicle (BEV) or Hydrogen Fuel Cell Electric Vehicle (FCEV).1
- Plug-in Hybrid (PHEV) Warning: Crucially, from April 1, 2025, Plug-in Hybrid Electric Vehicles (PHEVs) are no longer considered ZLEVs for FBT purposes, meaning new leases on PHEVs from this date will attract FBT.2 Focus on full battery electric models.3
- Luxury Car Tax (LCT) Limit: The car’s value must be below the LCT threshold for fuel-efficient vehicles (around $91,387 for the 2024/25 period, subject to change).4
- First Used Date: The car must have been first held and used on or after 1 July 2022.5
Why the EV is the Best Choice:
When a vehicle is FBT-exempt, 100% of the car’s finance payments and 100% of all running costs (including registration, insurance, charging electricity, and maintenance) can be paid directly from your pre-tax income.6 This results in maximum income tax savings and the full upfront GST saving on the vehicle’s purchase price.
- Popular 2025 EV Options: Tesla Model 3, Tesla Model Y, BYD Atto 3, Hyundai IONIQ 5, Polestar 2, MG ZS EV.
2. High Resale Value and Low Maintenance Costs
Even for non-EVs (or EVs above the LCT limit), running costs and the long-term value remain critical.7
- Low Running Costs: Packaging your running costs pre-tax is a huge benefit, but lower actual costs mean more money stays in your pocket. EVs, Hybrids, and small, reliable cars (e.g., Toyota Corolla, Mazda CX-5) typically have lower fuel/charging, servicing, and maintenance expenses, leading to a smaller, more manageable packaged budget.
- Strong Resale Value (The Residual Factor): The Residual Value (or balloon payment) is the lump sum due at the end of the lease.8 The ATO sets the minimum residual. A car with a reputation for strong resale value—like many Toyotas, Mazdas, and high-demand 4x4s (Ford Ranger, Toyota Hilux)—is highly desirable.9 If the actual market value of the car exceeds the Residual Value when you sell it, you pocket the difference as a tax-free profit.
3. Non-Electric Options: Utes and Family SUVs
While EVs offer the maximum tax benefit, not every driver can use one (e.g., those who need maximum towing capacity). For non-EVs, the novated lease still provides significant benefits by lowering the purchase price (via the GST discount) and bundling running costs.
- Popular Non-EV Options: Ford Ranger, Toyota Hilux, Mitsubishi Outlander, Ford Everest, Kia Sportage.
Part II: Novated Lease Calculator Step-by-Step Walkthrough
The novated lease calculator is the definitive tool for comparing potential savings between different vehicles. Its job is to move beyond mere estimates and provide an accurate, tailored cost to your take-home pay, adhering to all Australian tax rules.10
Here is the step-by-step process for generating an accurate quote:
Step 1: Input Your Financial & Personal Data
These details establish your marginal tax rate and state-specific costs.
| Input Field | Why It Matters | Example Input |
| Gross Annual Salary | Determines your income tax bracket, which dictates the rate of tax savings on your pre-tax deductions. | $95,000 |
| Postcode / State | Allows the calculator to factor in state-based costs like Stamp Duty, Registration, and CTP insurance, which vary significantly across Australia. | 5000 (Adelaide, SA) |
Step 2: Select Your Vehicle Details
This section determines the base cost of the lease.
| Input Field | Why It Matters | Example Input (EV) | Example Input (Petrol) |
| Make & Model | Directly impacts the purchase price, GST discount, and running cost estimates (fuel efficiency, servicing intervals). | Tesla Model Y RWD | Toyota RAV4 GX 2WD |
| Drive-Away Price | The price you would pay if you bought the car conventionally. The calculator uses this to determine the GST saving ($\approx 1/11$ of the price) and the finance amount. | $67,000 | $45,000 |
| Fuel/Energy Type | Critical for FBT compliance. The calculator automatically applies the FBT exemption for eligible BEVs/FCEVs and applies the Employee Contribution Method (ECM) for petrol/diesel cars. | Electric | Unleaded Petrol |
Step 3: Configure the Lease Terms
These are the variables you can adjust to fit the lease to your lifestyle and budget.
| Input Field | Why It Matters | Example Input |
| Lease Term (Years) | Typically 1 to 5 years. A longer term means lower monthly payments but a higher total interest cost. The ATO sets the minimum Residual Value based on this term. | 4 Years |
| Estimated Annual Kilometres (KM) | Drives the annual budget for fuel/charging, maintenance, and tyres. Under-estimating this will lead to budget shortfalls. Be realistic! | 15,000 km |
Step 4: Review and Interpret the Results
Once all inputs are entered, the calculator will generate a detailed cost comparison. The key figures to look at are:
| Result Figure | What it Represents | EV (Example) | Petrol (Example) |
| Total GST Saved | The immediate saving on the car’s purchase price plus the GST saved on all packaged running costs over the term. | $7,900 | $5,100 |
| Total Income Tax Saved | The reduction in tax paid due to salary sacrificing the payments. (Highest for EV due to FBT exemption) | $17,800 | $9,100 |
| Total Cost to Your Take-Home Pay (The Bottom Line) | The actual net deduction from your bank account after all pre-tax payments and tax savings are factored in. This is your true cost of ownership. | $185 per week | $290 per week |
| Residual Value (Balloon Payment) | The ATO-mandated lump sum due at the end of the 4-year term if you wish to own the car. | $\approx$ $23,000 | $\approx$ $15,000 |
The Critical Comparison Point
The most valuable output is the comparison between the Total Cost of Ownership via Novated Lease versus The Total Cost of Ownership via a Traditional Loan/Cash Purchase. The calculator should clearly demonstrate the total tax and GST savings that the novated lease unlocks.
Key Takeaway from the Calculator:
- For an eligible EV, the savings are maximal because 100% of the running costs and a larger portion of the finance payment are pre-tax (due to FBT exemption).
- For a Petrol/Diesel car, the savings are still significant, but part of your payment must be made post-tax (ECM) to offset the FBT liability.
Conclusion: The Right Car is the Tax-Optimised Car
In 2025, choosing the right car for your novated lease is fundamentally a tax and budget exercise.
- Prioritise FBT Exemption: For the greatest financial advantage, select an eligible Battery Electric Vehicle (BEV) below the LCT threshold.11 This choice will deliver the highest possible savings to your budget.
- Factor in Total Cost: If an EV is not suitable, choose a non-EV with proven reliability and low running costs to keep your bundled budget modest and manageable. Always ensure the lease term aligns with your expected ownership period to minimise interest costs.
- Trust the Calculator: Use the online novated lease calculator as your indispensable planning tool. Do not proceed with a lease until the calculator has provided a clear, FBT-compliant breakdown of the Total Cost to Your Take-Home Pay for your chosen vehicle.
By strategically aligning your vehicle choice with the ATO’s current tax incentives, you ensure your novated lease is the most financially efficient way to drive a new car in Australia.
