What is a novated lease?

How it works

What it means for you as an employee

The main benefit is tax. When lease repayments come from your pre-tax salary, you're effectively buying a car with money you'd otherwise pay to the ATO.

For a full-time PAYG employee earning $100,000 or more, the saving can be meaningful - typically $4,000-$10,000 a year depending on the car, your salary, and how the lease is structured.

What's typically included:

Running costs bundled into the lease also benefit from the pre-tax treatment - so it's not just the car repayment that saves you tax.

What you need to qualify:

• You're a permanent full-time or part-time PAYG employee
• Your employer is set up to process novated lease payments
• The vehicle is under the FBT threshold (for EVs - more on that below)

What happens at the end of the lease:

You'll have a residual payment - typically 28-35% of the original vehicle price, depending on the term. You can pay it out, refinance it, or use the car's trade-in value to cover it. Your expert will walk you through the options.

What it means for employers

Novated leasing costs employers nothing directly. They act as a conduit - processing salary deductions and forwarding payments to the finance company. The admin is handled by the lease provider.

For employers, the main reason to support it is staff retention. It's a genuine take-home-pay benefit that costs the business nothing to offer.

What employers need to do:

• Register with a novated lease provider (or support self-managed arrangements)
• Process salary deductions each pay cycle
• Maintain basic record-keeping for ATO compliance

Most payroll systems handle this automatically once set up. If your employer isn't currently set up, it's worth asking - many will agree if an employee requests it.

Self-managed novated leasing

Most people go through a novated lease provider - a company that handles the finance, running costs, and admin in one package. But there's another option: a self-managed novated lease.

With a self-managed arrangement, you handle the running costs yourself rather than bundling them into the lease. You pay for fuel, insurance, rego and servicing directly, and only the finance component runs through your employer's payroll.

When self-managed makes sense:

• You want more control over which insurer or service provider you use
• You think you can manage running costs cheaper than a bundled package
• Your employer supports payroll deductions but isn't registered with a specific provider

The trade-off:

Bundled leases are simpler and the running costs still get the pre-tax benefit. Self-managed gives you more flexibility but more admin. Most people on their first lease go bundled - it's easier.

EVs and the FBT exemption - why it matters

Fringe Benefits Tax (FBT) is normally payable on novated leases - and it's significant. Without an exemption, FBT can eat most of the tax saving, making the lease barely worth it.

In 2022, the Australian government introduced an FBT exemption for battery electric vehicles under a set price threshold. This changed the maths entirely. For eligible EVs, there's zero FBT - meaning the full tax saving goes to you.

The current threshold:

What about PHEVs?

Plug-in hybrid vehicles (PHEVs) lost their FBT exemption in April 2025. If you're considering a PHEV, the numbers are very different - run them carefully with an expert before proceeding.

What about regular petrol or diesel cars?

They're not FBT exempt. A novated lease on an ICE vehicle can still make sense at higher incomes, but the saving is smaller. LeasePlease focuses on EVs for this reason.

When a novated lease makes sense

Common questions