Key takeaways
- A novated lease is an agreement between you, your employer and a finance provider, with payments deducted from your salary.
- Part of the cost is usually paid from pre-tax salary, which can reduce your taxable income.
- Eligible battery electric cars can be exempt from fringe benefits tax, which can make the saving much larger.
- Home lenders count the lease payments as a commitment, which reduces your borrowing power.
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How does a novated lease work?
You choose a car, a finance provider leases it to you, and your employer agrees to make the lease payments from your salary. Running costs such as fuel or charging, insurance, registration, servicing and tyres are often bundled into the same deduction. If you leave your job, the lease stays with you and payments continue from your own account or transfer to a new employer.
Where does the saving come from?
Payments are usually made partly from pre-tax salary and partly from post-tax salary, depending on how fringe benefits tax (FBT) is handled. Paying from pre-tax salary lowers your taxable income. The size of the saving depends on your tax bracket, the car, the kilometres you drive and the fees charged by the provider.
Electric vehicles and FBT
Eligible battery electric vehicles below the luxury car tax threshold for fuel-efficient vehicles can be exempt from FBT. That allows the whole lease to be paid from pre-tax salary, which is why novated leases have become popular for EVs. Plug-in hybrids generally no longer qualify for new arrangements since April 2025. Check current eligibility with the provider and your employer.
What is the residual?
At the end of the lease a residual (balloon) payment is due. The minimum is set by the tax office based on the lease term. You can pay it, refinance it, or trade the car in and start a new lease. Plan for it from the start.
Trade-offs to consider
- Provider fees and bundled costs can be higher than arranging them yourself. Ask for a full breakdown.
- Lower take-home pay can affect some government payments and super contributions, depending on how your pay is structured.
- Ending the lease early can be costly.
- The residual needs to be funded at the end.
Novated leases and home loans
Lenders treat novated lease payments as a commitment when assessing a home loan, though they handle it differently: some reduce your income by the pre-tax deduction, others treat it like a car loan. Either way, it reduces what you can borrow. If a home purchase or refinance is coming up, talk to us before signing. See your car loan vs your home loan.
Compare a lease with a car loan
We'll show how a novated lease and a standard car loan compare for you, including the effect on any home loan plans.
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Frequently asked questions
Can anyone get a novated lease?
You need an employer that offers salary packaging for cars. Many do, but not all.
What happens if I change jobs?
The lease stays with you. You can transfer it to a new employer if they agree, or make payments yourself.
Does a novated lease affect my borrowing power?
Yes. Lenders count it as a commitment, which reduces how much you can borrow for a home.
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This guide is general information only and does not take your personal circumstances into account. It is not financial, credit, tax or legal advice. Examples are illustrative only. Government schemes, lender policies and rates change over time and eligibility criteria apply. Speak with us for advice tailored to your situation. LendQuest Pty Ltd is a credit representative (555514) of BLSSA Pty Ltd, Australian Credit Licence 391237.