How a novated lease saves tax
A novated lease is a three-way agreement between you, your employer and a finance company. Your employer pays the lease and the car’s running costs out of your salary package, and you have the car to use as your own.
The calculator models the usual structure:
- Purchase: the lessor claims the GST on the car (capped at one-eleventh of the car limit, $69,883 for 2026–27), so less is financed.
- Lease payments: worked out over the term with the ATO’s minimum residual value for that term — 28.13% of the financed amount after five years, 46.88% after three.
- Running costs: fuel or charging, insurance, registration, servicing and tyres are packaged too, and the GST on them is claimed back.
- FBT treatment:
- Petrol, diesel or hybrid car: the statutory formula gives a taxable value of 20% of the car’s base value each year. You pay that amount from after-tax pay (the employee contribution method) and the rest from pre-tax pay, so no FBT is payable.
- Exempt electric car: everything comes from pre-tax pay.
- Your tax: the pre-tax deduction lowers your taxable income, so you pay less income tax and Medicare levy.
The saving shown is the cost of paying the same lease and running costs yourself — including GST — minus the actual drop in your take-home pay.
Worked example: a $55,000 electric car on $100,000
Salary $100,000, $55,000 EV, 5 years at 8.5%, $5,000 running costs
The whole package comes out of pre-tax pay, so take-home pay drops by about $11,347 a year, while paying the same lease and running costs yourself would cost noticeably more. The estimated saving is $5,300 a year.
- Take-home pay falls by
- $436per fortnight
- Pre-tax deduction
- $582per fortnight
- Residual at end of lease
- $15,472incl. GST
Per year
- Lease payments (finance, ex GST)
- $10,042.66
- Running costs and fees (ex GST)
- $5,090.91
- Total packaged cost
- $15,133.57
- Paid from pre-tax salary
- $15,133.57
- Paid from after-tax salary (ECM)
- $0.00
- Reportable fringe benefit (on your income statement)counts for MLS, HELP and Division 293 income tests
- $20,755
- Income tax and Medicare saved
- $3,786.67
- Reduction in take-home pay
- −$11,346.90
- Same costs paid yourself (incl. GST)
- $16,646.93
- Estimated saving
- $5,300.03
Switch the electric car option off to see the same car as a petrol vehicle: the after-tax contribution of $11,000 a year (20% of $55,000) wipes out most of the benefit.
What changed for 2026–27
- Luxury car tax threshold for fuel-efficient vehicles: $91,661 (from $91,387). An EV priced above it is not exempt.
- Car limit: $69,883, which caps the GST credit on the purchase.
- FBT year ending 31 March 2027: rate 47%, type 1 gross-up 2.0802, type 2 gross-up 1.8868 — unchanged.
- Changes to the electric car exemption have been announced for later years; the calculator applies the exemption as it stands for the current FBT year.
Before you sign
- Ask for the full cost breakdown: interest rate, establishment fee, monthly management fee, insurance, and how running-cost budgets are reconciled.
- Check what happens if you change jobs. The lease usually reverts to you personally, without the tax benefit, unless the new employer takes it on.
- Compare against a personal car loan using the after-tax cost over the whole term, including the residual.