What is a Novated Lease?

A novated lease is a type of car lease arrangement in Australia that works as a three-way agreement between the employer, employee and finance company. Novated lease payments are made by the employer directly to the finance company before PAYG income tax is deducted from the employee’s salary. When compared to leasing a car directly, or even buying a car outright, a novated car lease can save the employee money.

The various features are detailed on MNY’s article on the subject of novated leasing.

Novated Lease: The Figures

Lease Amount

Min AmountMax Amount

The amount you can borrow under a novated car lease will vary from lender-to-lender but the minimum novated lease amount is usually between $5,000 – $10,000, whilst higher amounts are determined by the repayment capacity of the applicant and rarely exceed $150,000. 

Lease Term

Min TermMax Term
1 year5 years

The lease term is generally between one to five years and will be tailored to fit the employee’s repayment capabilities. Novated leases with a shorter term will have a high residual value.

Understanding Novated Lease Agreements

The responsibility of each party in a three-way novated lease agreement is as follows:

The employer is responsible for actually making payments to the lease company from the employee’s pre-tax salary.

However, under the terms of the contract, the employee is the one who is ultimately legally responsible for making the lease payments throughout the term of the agreement. If you leave a job during the term of a novated lease, or are fired, you are still responsible for making the lease payments due on the vehicle.

The leasing company is required to fulfil its obligations to procure the vehicle, set up the lease, and manage any ongoing requests throughout the term of the lease. If the vehicle is fully maintained by the leasing company then they’ll have obligations for the upkeep of the vehicle too.


How Repayments are Calculated

Calculating how much is due on the lease is quite simple. Repayments will be based on the cost of the vehicle, plus the cost of finance, minus the balloon payment/residual value which is due to be paid in one lump sum at the end of the lease term.

Novated Lease Residual Value

Also referred to as a balloon payment, the residual value is the amount due at the end of the lease agreement. It is designed to reflect the estimated market value of the car at the end of the lease. 

The residual value is set by the ATO and the reason for this is due to the tax implications of a novated vehicle lease, which can include goods and services tax (GST) and fringe benefits tax (FBT). 

This also posses a huge benefit for the business owner as well as the employee. Our study about novated leases for business shows 70% of business owners are happy to use novated leases.

The ATO minimum is usually quite cautious and at the lower end of a vehicle’s anticipated valuation. Meaning it’s sometimes possible to sell the vehicle at the end of the lease for more than the residual value. This is particularly true in current market conditions where there’s been a real supply shortage of new cars, driving up the price of cars on the second-hand market.

The shorter the term of your lease, the higher the residual attached. 

Term of leaseEffective Life (8 years)
Year 165.63%
Year 256.25%
Year 346.88%
Year 437.5%
Year 528.13%

The higher the residual, the lower the lease payments are, but this comes at the expense of one final, larger balloon payment. Calculate the residual value by multiplying the value of the car to be leased with the relevant percentage according to the lease term. 

Novated Lease Pros and Cons

As with any type of finance, it’s important to carefully consider the pros and cons of taking a novated lease. There are a number of novated lease benefits for both the employer and employee but there are also novated lease disadvantages too.

Novated Lease Benefits ✅

There are a number of benefits in taking out a novated car lease, especially compared to leasing a car directly. Some of the key novated lease benefits include:

Tax Savings

First of all, the employee does not need to pay the GST on the purchase price of the car or on the running costs of the car; including fuel, registration, maintenance and insurance. 

GST is already factored into the advertised price of a new car and employees using a novated lease salary sacrifice scheme will achieve a price which is better than advertised. Note that the potential GST discount under a novated lease is capped at $5,885.

Then there’s the reduction in income tax for employees. Lease payments are made directly to the finance company at each payroll cycle before PAYG income tax is deducted from the employee’s salary. Running costs are also deducted from pre-taxable income, further lowering earnings and income tax. 

As an example, if your annual salary is $75,000 a year pre-tax and annual lease payments total $9,000, then taxable income is $66,000.

Bulk Buying Discount

Due to the high number of vehicles that novated lease companies buy, they should be able to get a discount on the retail price of the car (in addition to saving GST). The same might apply for repairs and other running costs too.

Novated Lease for a Used Car

It’s possible to buy both new and second hand cars with a novated vehicle lease. Exactly how old the second hand car can be is dependent on the novated lease company. Some providers stipulate that the car has to be no older than 10 years at the end of the lease, whilst others go up to 15. So if you take out the maximum five year lease, you’d be looking at a car which is no older than 10 years at the time you enter the novated lease used car agreement.

Multiple Options at the End of the Leasing Period

At the end of the novated lease agreement, there are various options you can take. It’s possible to:

  • Extend the lease of your current vehicle with a new term
  • Upgrade your vehicle under a new lease
  • Make the balloon payment to pay out the residual value and own the car outright
  • Pay the residual value and then sell the vehicle, claiming any profit tax-free

No Fringe Benefits Tax for Electric Vehicles

Following the introduction of new legislation in July 2022, electric vehicles and plug-in hybrid electric vehicles are now exempt from fringe benefits tax (FBT) under a novated vehicle lease. 

Under the move, electric vehicles and plug-in hybrid vehicles up to the luxury car tax threshold of $84,916 are eligible during the 2022/23 financial year.

As stated by the Labor Government:

If a $50,000 model is provided through employment arrangements, Labor’s fringe benefits tax exemption will save employers up to $9,000 a year. Often FBT is passed on to employees – and those employees will benefit directly from Labor’s policy.

Savings will be even higher for more expensive models (up to the luxury car tax threshold).

This helped propel the popularity of electric cars in Australia among businesses and individuals alike (and even more so, the popularity of electric vehicle novated leasing, and particularly Tesla).

If you are required to pay FBT, this can be calculated on the ATO website

Novated Lease Disadvantages ❌

There are novated lease disadvantages to consider too. The main ones being:

Extra Repayments Not Possible

Unlike a business car loan, you do not have the option to make extra repayments on a novated lease. Repayments are fixed and it’s not possible to pay the vehicle off faster.

Still Obliged to Make Payments if you Move Jobs or are Fired

If you lose your job, you are still legally required to make repayments under the novated lease. And unless you find another employer which offers novated leasing, you’ll need to make payments from your personal funds and won’t benefit from the various tax savings that come with a novated lease under a salary sacrifice scheme. 

If you find another job, your new employer may not offer novated lease salary packaging.

Must Factor in the Residual Value / Balloon Payment

Every novated car lease involves paying a balloon payment at the end of the term, equal to the residual value (as stipulated by the ATO). 

The residual value is clearly detailed at the beginning of the lease, but employees will have to budget for a one-off, large payment once they reach the end of the agreement.

Only Available to Salaried Employees

The scheme only works under novated lease salary sacrifice. Thus, a novated lease is only available if you have a salary. This means a novated vehicle lease for self employed individuals is not possible (more on this later).

Fringe Benefits Tax is due on Petrol & Diesel Vehicles

The savings on fringe benefits tax are only possible on electric vehicles and plug-in hybrid electric vehicles. Petrol and diesel vehicles will be subject to fringe benefits tax under a novated lease salary packaging. 

Before you agree to a novated lease, weigh up all of the novated lease benefits against the novated lease disadvantages and decide if a novated lease is right for your situation. If you use a car frequently and have no plans to go self employed, there’s a strong chance the benefits will outweigh the novated lease disadvantages. It’s usually the smartest way for employees to run a car.

Best Novated Car Lease Company

There are a significant number of novated lease companies in Australia and determining the best novated lease company can be difficult. You’ll find that novated lease companies work with a number of different lenders and they don’t actually provide the finance to purchase the car at the beginning of the lease. 

Their role is to manage the ongoing operational procedures of a novated lease. This includes things like working with your employer to ensure fringe benefits tax is paid to the ATO on an annual basis through the Employee Contribution Method (if your car does not qualify for FBT exemption that is).

They should have experience in working with HR and payroll, as well as managing large business vehicle fleets. Some of the major and best novated lease companies in Australia include:

Novated Lease Australia

With offices in Sydney and Melbourne, Novated Lease Australia can help employees make huge savings when buying a car. They’re keen to encourage employees to consider alternative providers, rather than just opting for the novated lease company your employer has an existing relationship with. They firmly believe it should be an employee benefit, not just an employer benefit. Their website is slick and there’s a plethora of information for prospective customers to peruse that covers electric cars, GST, FBT and ultimately determining is novated lease worth it?


Headquartered in Melbourne, Maxxia is one of Australia’s largest novated lease salary packaging providers. They’ve specialised in workplace benefits for over 30 years, and have delivered significant tax-savings for their customers in this time. Maxxia holds relationships with a number of lenders and regularly update their website with the latest policies that impact novated leases. 


FleetPartners is part of an ASX-listed financial services company that operates in both Australia and New Zealand. With almost 30 years of experience in vehicle leasing and fleet management, they currently keep more than 55,000 vehicles on the road across Australia. FleetPartners prides itself on working with companies that range from SMEs with just a handful of employees, all the way through to large multinationals.

Starting Point

Use the button below to get your application processed promptly. You can always compare offers with other providers later on:

Step-by-Step: How to Get a Novated Vehicle Lease

Here’s an overview of the steps involved in getting a novated lease in Australia:

  1. Choose a car: First, you’ll need to decide on the car you want to lease. If you want to go down the second hand route, keep in mind how old the car will be at the end of the lease and whether a car of this age is permitted by the novated lease provider (could be eight, ten or fifteen years).
  2. Find a novated lease company: Your employer may provide the flexibility for you to find your own selection of novated lease companies and determine the best novated lease company for yourself. This is preferential as you can save thousands by choosing the right provider. Large organisations are more likely to have a preferred novated leasing partner, which could limit your options. 

Rather than going from one lender to the next, consider an automated process or brokerage that holds relationships with multiple novated lease companies and will do the legwork for you.

  1. Get quotes: If you have the flexibility to choose between a number of novated lease companies, get multiple quotes and find the best novated lease offer available. 
  2. Finalise the novated lease agreement: If your employer has agreed to the novated lease, you can proceed to sign the agreement. The T&C’s will outline the monthly lease payments, the length of the lease, the residual value at the end of the lease and any other fees and charges.
  3. Take delivery of the car: Once the lease agreement is finalised, all that remains is to take delivery of the car and start enjoying the benefits of a novated lease.

Qualifying for a Novated Lease

Remember, you have to be an employee of a business to qualify for a novated car lease. The most common disqualification of a novated lease is those individuals operating as a sole trader. As explained by the ATO, you can’t pay yourself a salary if you’re a sole trader, so you can’t get a novated lease. You’d either have to register as a limited company and pay yourself a wage, or consider alternative forms of finance like a chattel mortgage

Like any type of finance, you’ll also need to be able to demonstrate a reasonable credit history and your ability to make future repayments. Choosing a car and a novated lease salary packaging deal that’s suitable to how much you earn, is important to qualify for novated vehicle lease.

Finding the Best Novated Lease Company 

When it comes to determining the best novated lease company, there are several factors to consider:

Interest rate 

As with any type of finance, the interest rate on the lease will have a significant impact on the total cost of the lease. Try to compare rates from multiple providers and oftentimes the cheapest company might be the best novated lease company.

Other Fees 

Be sure to fully understand the T&C’s and if any additional fees apply.

Flexibility With Second Hand Cars

Different lease companies will have different permissions around how old a car can be at the end of the lease. If you want to purchase an older second hand car, be sure to find a novated lease company that permits a car of this age.


Be sure to work with a reputable novated lease company that has a strong track record of positive client testimonials. If you’re required to use the novated lease partner of your employer, still check their reputation. If you leave your job, you’ll be required to work with the novated lease company directly.

By considering all of these factors and comparing offers from different novated lease companies, you can determine the best novated lease company for your needs and budget.

Novated Lease for Tesla

The high cost of electric vehicles is one of the major stumbling blocks that prevents the adoption of these cars in Australia (EV cars are becoming increasingly popular also by businesses owners, but are still not the “golden standard” in Australia). By opting for a novated lease it makes cars like a Tesla much more accessible.

All of the novated lease electric card benefits benefits we have discussed apply on a Tesla novated lease. Including of course the recent legislation changes which make a Tesla novated lease exempt from fringe benefits tax. Just remember the Tesla novated lease would have to be on a model below $84,619. 

In January 2023, Tesla Australia reduced the price across a number of its models and indeed they are eligible for an FBT exemption.

ModelNew 2023 PriceNovated Lease Tesla FBT Exempt?
Model 3 Rear Wheel Drive$63,900Yes
Model Y Rear Wheel Drive$68,900Yes
Model 3 Long Range$76,900Yes
Model 3 Performance$89,900No
Model Y Performance$94,900No

Considering the GST and FBT savings, you could save thousands with a novated lease for Tesla models like the Model 3 and Model Y.

Final Word: Is Novated Lease Worth It?

Whether a novated lease is the right decision for you will depend on your own personal circumstances. But if you use a car regularly and plan to remain as an employee for the duration of the lease term, then a novated lease is generally the smartest way to finance a car. From a standalone cost perspective, the novated lease benefits tend to outweigh the novated lease disadvantages and a novated lease can even prove cheaper than buying a car outright in cash.

The best novated lease company for you will also depend on your own financial profile but they should be able to recommend cars that reduce the financial burden on you and have the buying power to save you money on the initial purchase price.