Novated Lease Pros and Cons.

Are you thinking about getting a new car through a novated lease? You’re not alone. Thousands of Australians are turning to novated leasing as an alternative to buying a car outright or taking a traditional car loan. But as with any financial product, it’s not all sunshine and salary packaging.

So, is a novated lease worth it? In this guide, we break down the real-world pros and cons of novated lease options, from tax savings and running costs to fringe benefits tax (FBT) and residual value considerations.

But before discussing the pros and cons of a novated lease, let’s get the basics right. 

What Is a Novated Lease?

A novated lease is a three-way agreement between:

• You (the employee)
• Your employer
• A lease provider (like Vehicle Solutions Australia)

The provider buys the car, and your employer deducts the lease payments and car running costs from your pre-tax salary. This means your taxable income is reduced, saving you income tax.

Here’s the key: it’s not a company car. You choose the vehicle, you drive it for both work and personal use, and you take it with you if you change jobs (assuming your new employer agrees to continue the arrangement).

That means you’re paying less income tax and GST while enjoying access to a brand new (or even second-hand) vehicle.

In Australia, Vehicle Solutions Australia partners with employers nationwide to simplify the process. And thanks to our collaboration with Motorbuys, you also enjoy access to competitive car purchase pricing without the back-and-forth dealership drama.

The Pros: Why Australians Love Novated Leasing

Let’s start with the upsides.

1. Potential Tax Savings

One of the biggest reasons employees choose a novated lease is the tax benefits. Because your lease payments and all of the vehicle running costs are deducted from your income, you lower your taxable income and that can mean real money back in your pocket each pay cycle.

And if you choose an eligible electric vehicle under the Government’s EV incentive, you might even qualify for FBT exemption, meaning the car is entirely income tax-free and GST Free.

According to the Australian Taxation Office, eligible electric cars under the luxury car tax threshold are 100% exempt from FBT if the lease began after 1 July 2022.

Let’s say you earn $90,000 a year and choose a vehicle valued at $35,000. Under a novated lease, your lease payments, fuel, servicing, insurance, registration, and more can be bundled into your pre-tax income, which can significantly lower your taxable income.

This might sometimes reduce your income tax by over $3,000 per year.

If leasing an eligible electric vehicle, you might also qualify for a full fringe benefits tax (FBT) exemption, thanks to the Federal Government’s 2022 EV policy. The only condition is that the vehicle’s value must sit below the luxury car tax threshold ($91,387 for EVs as of 2024–25).

Real example:

Let’s say Sarah, a primary school teacher in South Australia on $90,000 per year, leased a $43,000 electric Hyundai Kona. Because it’s under the threshold, her employer doesn’t pay any FBT, and she pays no tax on her lease deductions. She’s saving over $6,000 per year in tax.

2. Bundled Running Costs

Unlike owning a car, where bills can pop up anytime (insurance renewals, surprise mechanical issues, tyre replacements), a novated lease packages these into one regular deduction.

The costs often include:

• Registration and CTP
• Comprehensive insurance
• Scheduled servicing
• Tyres
• Fuel or EV charging
• Roadside assistance

By rolling all of this into one easy lease payment, budgeting becomes simpler. There are fewer surprise bills and better control over running costs.

3. Flexibility at the End of the Lease

When you reach the end of the lease, you’ve got choices:

• Pay the residual value and own the car
• Refinance the residual payment into a new lease agreement
• Sell or trade-in and start a new lease

This flexibility is a big perk, especially if you like upgrading cars every 3 to 5 years.

4. No Upfront Purchase Price

With a novated lease, you don’t need a lump sum to cover the full purchase price of the car. You can drive away with zero upfront payment and repay it in manageable, tax-efficient instalments.

5. Access to Fleet Discounts

Vehicle Solutions Australia, through the Motorbuys platform, helps you skip the dealer markup. Because we’re connected to a large network of dealers, we can often secure fleet pricing at bulk-buy prices on your behalf.

That means savings not just on car loan interest; you could save $2,000–$10,000 off the vehicle’s purchase price, sometimes more.

The Cons: Where Novated Leasing Can Get Tricky

Now, let’s explore the other side of the coin. While novated leasing can offer great tax savings, it’s not for everyone.

1. If you move to a new employer

Your novated lease agreement relies on your employer being part of the deal. If you switch jobs and your new employer doesn’t offer novated leasing, you may need to cover the full cost of the lease privately.

However in over 90% of cases Vehicle Solutions have assisted employees get their Novated Lease establish at their new employer. It costs the employer nothing and the only work required is establishing the payrol deduction and payment of a single tax invoice per month.

3. Residual Value Risk

At the end of the lease, you’ll usually have to pay the residual value—a final lump sum defined by the ATO guidelines (e.g., 28.13% of car value after 5 years).

You have three options:

• Pay the residual value and keep the car
• Sell the car and use the funds to cover the balance
• Refinance the residual into a new lease

If the car’s market value drops faster than expected, you may end up paying more than it’s worth.

However this is very rare as the ATO set the Residual Value very low to ensure they keep everyone as safe as possible.

5. FBT Can Catch You Out

Unless you lease an EV that’s FBT exempt, your employer will calculate fringe benefits tax based on the car’s value and usage. This cost is often passed back to you through salary deductions.

It’s not a deal-breaker, but it can eat into your expected tax savings, especially on luxury or high-emission cars.

Novated Lease vs Traditional Car Loan

Wondering whether to go with a novated lease or a car loan? Let’s compare the options side-by-side:

Is a Novated Lease Worth It in Australia?

The answer? Yes, it still is. 

For many employees (especially those in stable roles with employers who offer novated leasing), it’s a great way to maximise tax benefits, simplify car running costs, and enjoy a newer car without dipping into savings.

That’s why Vehicle Solutions Australia offers obligation-free advice to help you figure out what suits your lifestyle and budget. You can also use our novated lease calculator to see how much you can save on a vehicle with a novated lease. 

Frequently Asked Questions

Do you really save money with a novated lease?

Yes, especially if you’re on a mid-to-high income. Using pre tax salary for lease payments and running costs lowers your taxable income, which can mean significant tax savings. 

Is novated lease a trap?

Not at all, when used correctly. The key is understanding the full cost over the lease term, including residual payment, FBT, and job flexibility. 

Is it better to novate-lease a car or buy outright?

It depends on your budget and ownership goals. A novated lease is perfect if you want tax savings, easy budgeting, and frequent car upgrades. 

Can I lease an electric vehicle on a novated lease tax-free?

Yes. The Australian government currently offers FBT exemption on eligible EVs under the luxury car tax threshold. This makes electric novated leasing one of the most cost-effective ways to drive a new EV.

Have more questions? Send us your enquiries by contacting us. Vehicle Solutions Australia makes novated leasing simple, transparent, and tailored to your goals. And with access to competitive car pricing via Motorbuys, you can find great deals and even better support.