Choosing a new vehicle is not all about the make, model or colour – it’s also about how you pay for it. One question that’s becoming more common across Australian workplaces is: is a novated lease worth it?
The short answer: yes, but only if the numbers stack up for your specific situation.
At Vehicle Solutions Australia, we specialize in providing simple, competitive, and transparent vehicle novated leasing options for employees across the country. In partnership with our sister company, Motorbuys, we also assist with car purchases.
Now let’s go into the details to help you determine whether a novated lease aligns with your financial and lifestyle goals.
How Does a Novated Lease Work?
A novated lease is a three-way agreement involving you, your employer, and a leasing company. You choose a new or used car, sign a lease agreement, and your employer pays the lease through deductions from your pre-tax salary. This reduces your taxable income, giving you tax savings compared to financing the same car yourself.
Under a fully maintained novated lease, your running costs — fuel, registration, servicing, insurance — are bundled into the one monthly payment. You don’t pay GST on these expenses or the purchase price; the lease term usually runs between 1 and 5 years.
Example: Say you earn $90,000 a year and lease a $40,000 car. That lease might reduce your taxable income by about $10,000, depending on the cost breakdown, which could save you around $3,700 annually in income tax. Over five years, that’s $18,500 in tax benefits, not counting GST savings or vehicle fleet pricing from Vehicle Solutions.
When Is a Novated Lease Worth It?
#1. You Drive a Lot and Have Predictable Car Running Costs
If you’re regularly commuting or clocking up kilometres, a novated lease can help you manage car running costs more predictably. Costs like servicing and tyres are accounted for ahead of time in your lease payments.
#2. You’re in a Consistent Job With Novated Lease Options
If your employer offers novated leasing, it’s generally worth a look. If your employer doesn’t offer Novated Leasing we can assist is showing your employer the benefits at no cost to them. Also, if you change jobs, we can assist to transfer the lease to your new employer.
#3. You’re Looking at a New or Low-Maintenance Used Car
Leasing makes more sense when unexpected repair bills aren’t part of the equation. If you’re going to lease, aim for a fuel-efficient vehicle or a new car to maximise the value of bundled running costs.
#4. You’re Considering an Electric Car
Right now, novated leasing an electric vehicle offers exceptional value. As of 2024, electric cars below the luxury car tax threshold ($91,387) are 100% exempt from FBT (fringe benefits tax). This makes salary packaging even more attractive, potentially saving thousands.
Understanding Fringe Benefits Tax (FBT) and How to Avoid It
A major part of the novated lease conversation is fringe benefits tax. Normally, employer-provided cars attract FBT at a 47% rate for personal use. But there are two ways to reduce or eliminate this:
- Employee Contribution Method (ECM): You cover some running costs (like fuel) with post-tax dollars, reducing the FBT owed.
- Electric Vehicles: As mentioned, EVs under the luxury car tax threshold are FBT-free.
The key takeaway: Understand your FBT exposure early, and use ECM if you’re not leasing an EV.
What Are the Real Running Costs in a Novated Lease?
This is where a fully maintained novated lease shines. Your lease repayments often include:
- Fuel
- Scheduled servicing
- Tyres
- Registration
- Insurance
- Roadside assistance
This simplifies budgeting and can save you money, especially with GST removed. On a typical $45,000 lease, that could mean $4,500 saved in GST alone over the lease term.
Tip: Always compare lease payments across different novated lease companies.
What Happens at the End of the Lease?
The end of the lease involves dealing with the residual value – a lump sum set by the ATO you can pay to keep the car.
ATO Minimum Residual Values:
- 1 year: 65.63%
- 3 years: 46.88%
- 5 years: 28.13%
Example: For a car with a purchase price of $50,000 on a 5-year lease, the residual value is $14,065. At lease end, you can:
- Pay out the residual and own the car outright
- Trade it in and start a new lease
- Refinance the residual value
The smart move depends on the market value of the car. If resale value is higher than the residual value, you’re in a good position.
How to Pick a Good Lease Provider
Choosing the right lease provider makes a big difference. A good provider like Vehicle Solutions Australia will:
- Offer clear, fixed quotes with no hidden fees
- Help you calculate your taxable income impact and tax benefits
- Include servicing and support
- Hold an Australian Credit Licence
- Work with suppliers like Motorbuys to secure competitive purchase price deals
Frequently Asked Questions
Do you really save money with a novated lease?
Yes – when structured well, it can lower your taxable income, remove GST on major expenses, and provide access to fleet discounts. But always run the numbers.
Is getting a novated lease worth it for electric cars?
Absolutely. EVs under the luxury car tax threshold are FBT-free, making them one of the best-value salary packaging options right now.
Can I get a novated lease for a used car?
Yes, but the car usually needs to meet age and value criteria. It should be in good condition to keep servicing costs low.
Is it better to use a car loan or novated lease?
It depends. A car loan might be cheaper upfront, but a novated lease can offer better tax benefits and simpler budgeting over time.
Final Words
Whether you’re after a reliable work car or keen on a new EV, the question is novated leasing worth it? comes down to maths, your job situation, and personal preferences. Use realistic figures, compare providers, and make sure you understand your responsibilities before you sign.
Vehicle Solutions Australia offers transparent, competitive options with Australia-wide support and no-nonsense advice. Partnering with vehicle dealers, we also help you lock in great car purchase prices to start your journey off right.
