What is a novated lease?
A novated lease is a car lease that your employer helps you pay through salary packaging. The lease is between you and a finance provider, and your employer agrees to take on (or “novate”) the repayments from your pay while you work there.
Part of the cost usually comes out of your pre-tax salary, which can lower the income tax you pay. Many packages also bundle running costs such as fuel or charging, rego, insurance and servicing into one regular deduction.
- Your employer must offer salary packaging for you to use one
- Fringe benefits tax (FBT) normally applies to a packaged car, and providers structure deductions to manage it
- At the end there’s a residual, a lump sum you can pay out, refinance or roll into a new lease
Choosing between a novated lease vs car loan starts with that first point: no packaging at work, no lease. A residual works much like a balloon, and our balloon payments guide explains how that end-of-term lump sum behaves.
Novated lease vs car loan: which is cheaper?
It depends on the car and your circumstances, so there’s no universal winner. For an eligible electric car, the FBT exemption can tip the scales towards a novated lease for many employees. For a petrol or hybrid car the maths is much closer, and a car loan can easily hold its own.
| Novated lease | Car loan | |
|---|---|---|
| Who’s involved | You, your employer and a lease provider | You and a lender (we find one for you) |
| How you pay | Deducted from your pay, partly pre-tax | From your after-tax income, on a schedule you choose |
| Running costs | Often bundled into your deductions | Paid by you as they come up |
| Employer needed? | Yes, they must offer salary packaging | No |
| Tax angle | FBT applies to most cars; eligible EVs currently exempt | Personal use generally isn’t deductible; a business-use portion may be |
| If you change jobs | Lease stays with you; packaging may stop | Nothing changes |
| End of term | Residual due: pay it, refinance or re-lease | Car is yours outright, unless you chose a balloon |
A novated lease may suit you if:
- You’re a salaried employee in a stable job and your employer offers packaging
- You’re buying an eligible EV under the fuel-efficient LCT threshold
- You like bundling running costs into one deduction
- You expect to stay with the same employer for most of the lease
A car loan may suit you if:
- You’re self-employed, contracting or between jobs
- You’re buying a petrol, diesel or plug-in hybrid car
- You want no link between your car and your employer
- You want to choose your own term and balloon, and pay extra if the loan allows
How does the EV FBT exemption work?
Under the Electric Car Discount, an eligible electric car provided through your employer, typically via a novated lease, is exempt from fringe benefits tax. That can make a real dent in the after-tax cost of driving an EV.
Right now, the car must:
- Be a zero or low emissions car: battery electric or hydrogen fuel cell
- Have been used for the first time on or after 1 July 2022
- Have been valued below the luxury car tax (LCT) threshold for fuel-efficient vehicles at its first retail sale, and any later sale
- Be provided under an employer arrangement, such as salary packaging
| Financial year | Fuel-efficient vehicles | Other vehicles |
|---|---|---|
| 2025–26 | $91,387 | $80,567 |
| 2026–27 | $91,661 | $80,809 |
Plug-in hybrids stopped qualifying from 1 April 2025, unless they were already under an arrangement before then. Even when the car is exempt, it’s still a reportable fringe benefit, so it appears on your income statement. That’s worth a quick chat with your accountant.
What changes to the EV exemption from April 2027?
On 5 May 2026, the Government announced a phased wind-back of the EV exemption. The current rules stay in place until 31 March 2027, then change in two steps.
| Period | EVs valued at $75,000 or less | EVs above $75,000 (under the fuel-efficient LCT threshold) |
|---|---|---|
| Now to 31 March 2027 | Full exemption | Full exemption |
| 1 April 2027 to 31 March 2029 | Full exemption | 25% FBT discount |
| From 1 April 2029 | 25% FBT discount | 25% FBT discount |
The Government said existing leases won’t be affected, and the legislation details are still pending. If you’re weighing up an EV lease, check the latest position with your provider or accountant before you sign.
What happens to a novated lease if I change jobs?
The lease stays with you. It doesn’t end because you resign or are made redundant; what stops is your old employer paying it from your salary.
- Transfer it to your new employer, if they offer salary packaging and agree to take it on
- Keep paying it yourself from your after-tax income, without the tax benefits
- Pay it out by settling the balance with the lease provider, which may involve extra costs
This is the biggest practical difference from a car loan, which isn’t linked to your employer at all. If a job change looks likely in the next few years, factor that in before you sign.
Can I get a novated lease on a used EV?
Often, yes, provided the car meets the exemption rules and your lease provider will finance it. The key tests are that the EV was first used on or after 1 July 2022 and was never subject to luxury car tax.
The ATO notes that if you buy an electric car second-hand, you need to check whether it was subject to LCT at any time in the past. Your provider should help confirm this from the car’s history.
Prefer to own it outright from day one? Our electric car loans page explains how EV finance works with a loan instead.
What you’ll need
- Recent payslips
- Your employer’s salary packaging policy (for a novated lease)
- A full lease quote showing deductions, residual and fees
- Car details: make, model, price and fuel type
- For a used EV: its first-use date and sale history, to confirm LCT status
- Driver licence and a second form of ID
- A list of your debts and regular expenses
Who it usually suits
- Novated lease: you’re an employee and your employer offers salary packaging
- EV exemption: an eligible battery electric or hydrogen fuel cell car under the fuel-efficient LCT threshold
- Car loan: steady income from a job, your own business or other regular sources
- Usually 18+ and an Australian citizen or permanent resident (some lenders consider visa holders)
- A credit history lenders can assess; less-than-perfect credit is considered case by case
