What is a novated lease?

A novated lease is a three-way agreement between you, your employer, and a finance company. Your employer makes lease payments on your behalf from your pre-tax salary, reducing your taxable income. Running costs (fuel, servicing, insurance, registration) can also be bundled into the lease and paid pre-tax.

FBT exemption for EVs

Since 1 April 2022, battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs, until 1 April 2025) under the current Luxury Car Tax threshold for fuel-efficient vehicles are exempt from Fringe Benefits Tax (FBT). This makes novated leasing significantly more attractive for EVs than for petrol cars.

Without FBT, the entire pre-tax salary package value of the lease avoids income tax. For someone in the 37% or 45% marginal tax bracket, this is a very large saving.

Pre-tax vs post-tax calculation

The calculator shows your weekly take-home impact by comparing two scenarios:

• Without novated lease: Salary minus income tax, Medicare levy, and HELP (if applicable) = take-home pay
• With novated lease: Salary minus pre-tax lease deductions, then minus tax on reduced salary = take-home pay

The difference is your weekly cost of the vehicle. Because lease payments come from pre-tax dollars, the effective after-tax cost is lower than buying outright.

Worked example

Salary: $120,000. EV: Tesla Model 3, 3-year term. Drive 15,000 km/year.

• Pre-tax lease payments: ~$850/fortnight
• Tax on $120,000 (resident): $31,467 + Medicare $2,400 = $33,867
• Tax on $120,000 − ($850 × 26): $120,000 − $22,100 = $97,900 taxable → $26,423 + Medicare $1,958 = $28,381
• Tax saving: $33,867 − $28,381 = $5,486/year = $211/fortnight
• Net fortnightly cost of vehicle: $850 − $211 = $639 (vs $850 after-tax if bought)

Running costs included

The calculator bundles energy (home charging), servicing, insurance, and registration into the pre-tax deduction. Each of these saves you the equivalent of your marginal tax rate compared to paying from post-tax income.

Tax rates used are FY2025-26ATO schedules. Results are indicative only — actual savings depend on your employer's novated lease offering, residual values, and personal tax position. Not financial advice.