Is a Novated Lease Worth It?
The Top 10 Pros & Cons
Before entering into a novated lease agreement, it's vital to weigh the substantial tax and GST perks against the contractual commitments and end-of-lease responsibilities.
Novated Lease Advantages
10 reasons drivers choose novated leases1. 100% Personal & Private Use
Drive anywhere without logbook restrictions. The car is registered in your name and can be driven by family members.
2. EVs are 100% Exempt from FBT
Electric vehicles under the $91,661 LCT threshold pay zero Fringe Benefits Tax, allowing 100% pre-tax salary deductions.
3. Upfront GST Savings (Up to $6,353)
Finance companies claim an input tax credit on the car purchase, wiping out 10% GST from your purchase price.
4. Lower Taxable Income
Pre-tax lease repayments reduce your gross taxable income, reducing your income tax under Stage 3 tax brackets.
5. Bundle All Running Costs
Package electricity/fuel, comprehensive insurance, rego, CTP, servicing, and tyres into one predictable deduction.
6. Save 10% GST on Running Costs
Save 1/11th on all running cost invoices, including power, petrol, maintenance, and insurance.
7. New, Used, or Existing Cars
Lease a brand new car, a used car up to 12 years old, or your existing car via a 'sale and leaseback'.
8. Fleet Buying Power
Access bulk dealer discounts and preferred pricing that individual retail car buyers cannot get.
9. Portable Between Employers
If you change jobs, your novated lease moves with you to your new employer without breaking the agreement.
10. End-of-Lease Flexibility
Trade in and keep surplus equity 100% tax-free, payout the ATO residual to own outright, or extend the lease.
Novated Lease Disadvantages
10 potential drawbacks to keep in mind1. Salaried PAYG Employees Only
Novated leasing requires an employer payroll relationship. Sole traders and self-employed individuals cannot participate.
2. Requires Employer Agreement
Your employer must agree to execute the novation agreement and make payroll deductions.
3. Possible Panel Provider Lock-in
Some employers steer staff to high-margin panel providers unless you request a self-managed novated lease.
4. You Don't Own It Until Residual is Paid
The financier holds security over the vehicle title until the final ATO residual payment is cleared.
5. Fixed Repayment Structure
Lease terms and payment schedules are fixed, making it harder to make irregular extra lump-sum repayments.
6. Petrol/Diesel Cars Subject to FBT
Non-EVs require post-tax salary contributions (ECM) of ~20% of the car's base value to eliminate FBT.
7. Commercial Vehicles Ineligible
Passenger cars, SUVs, and light utes (<1,000kg payload) qualify, but heavy commercial trucks and motorbikes do not.
8. Complexity If Unemployed
If you lose your job and cannot find another employer to novate, the lease converts into a standard car loan.
9. Residual (Balloon) Payment at End
You must budget for the ATO statutory residual (e.g., 28.13% on a 5-yr lease) by trade-in, cash payout, or refinance.
10. More Paperwork than Buying Cash
Involves three-way documentation and credit approval, though reputable providers handle most logistics for you.
Who Benefits Most from a Novated Lease?
Electric Vehicle Buyers
With 100% FBT exemption under the $91,661 threshold, EV buyers save far more through novated leasing than buying with cash or a standard car loan.
Middle & High Earners
Those in the 32%, 39%, or 47% marginal tax brackets shield income from the highest tax bands, creating massive annual tax refunds.
Moderate to High Drivers
If you drive 10,000 to 30,000+ km per year, packaging GST-free fuel/charging, insurance, and tyres multiplies your tax savings.
See How the Numbers Stack Up for You
Compare the net take-home pay cost of a novated lease against a standard car loan with our interactive calculator.
Calculate My Real Savings