Novated Lease Term: Should You Pick 1, 3 or 5 Years on an EV?

For most EV buyers, the best novated lease term is the longest one you’ll actually keep the car for, which is usually four or five years. A longer novated lease term gives you a smaller pay deduction and a smaller balloon at the end. On an electric car it also keeps the FBT exemption running longer, which matters more now than it used to.

The common alternative is a short lease that you refinance later. Under the draft FBT law, that plan has a catch. Treasury’s explanatory materials say refinancing, or changing a lease’s term or residual, starts a new commitment, and a new commitment gets whatever tax treatment applies on that day. From April 2027 that can be a lot less generous than the exemption you started with.

This guide shows what each term from one to five years does to your costs, and how the 2027 changes affect the choice. For how a novated lease works overall, start with our EV novated leasing hub.

What a novated lease term changes

A novated lease term is the length of the lease contract, usually one to five years. Maxxia, one of the largest providers, offers terms in that range, and most others are similar. The term sets three numbers at once: your regular payment, the residual you owe at the end, and the total interest you pay.

The residual is the lump sum, or balloon, due when the lease ends. The ATO sets the minimum residual by term in Taxation Determination TD 93/142, and providers can’t go lower. Longer terms have smaller residuals because you’ve paid off more of the car.

Here’s what that looks like on a $62,000 amount financed at 7.5% interest, with monthly payments. These are finance figures only. They leave out running costs, fees and GST credits, which vary by provider (as of November 2026).

Term	Minimum residual	Residual owed	Monthly finance payment	Total interest
1 year	65.63%	$40,691	$2,103	about $3,900
2 years	56.25%	$34,875	$1,439	about $7,400
3 years	46.88%	$29,066	$1,206	about $10,500
4 years	37.50%	$23,250	$1,082	about $13,200
5 years	28.13%	$17,441	$1,002	about $15,600

Worked example by Gridly using the ATO minimum residuals. Your provider’s rate and fees will change the figures.

Moving from three years to five cuts the payment by about $204 a month and the balloon by $11,625. It adds about $5,100 in interest. That’s the real trade: more interest in exchange for a lower payment, a smaller payout and a longer run of pre-tax payments.

Short terms cost more each pay, and the tax saving doesn’t scale

A short novated lease term means a much bigger deduction from every pay. In the table, a one-year lease costs more than twice as much per month as a five-year one. Owners comparing quotes see the same pattern. One recent quote on a mid-size EV showed the monthly deduction rising by about $264 when the term dropped from three years to two, and by over $1,000 at one year.

Paying more doesn’t buy a bigger tax saving each year. The FBT exemption saves you tax on the car payments and running costs you package, and that saving runs for as long as the lease runs. A five-year lease gives you five years of pre-tax payments on an exempt car. A two-year lease gives you two, then a large residual that you pay from after-tax income.

That’s why short terms suit only a few people. They make sense if you’re sure you’ll sell or upgrade quickly, or if you have a large cash sum ready to clear the residual. For most households the five-year end of the range does more of what a novated lease is for.

The novated lease term and the 2027 FBT changes

The FBT exemption for EVs is being phased down, and your lease term decides how long you keep the current rules. The changes are in the Treasury Laws Amendment (Tax Reform No. 4) Bill 2026, introduced to the House of Representatives on 27 October 2026. As of 6 November 2026 it’s still before the House, so none of this is law yet.

Under the draft, the date your lease commitment is made decides your treatment:

Lease commitment made	EV with base value $75,000 or less	EV above $75,000, up to the LCT threshold
Before 1 April 2027	Full exemption until that commitment ends	Full exemption until that commitment ends
1 April 2027 to 31 March 2029	100% FBT discount	25% FBT discount
From 1 April 2029	25% FBT discount	25% FBT discount

Source: Treasury exposure draft and explanatory materials, September 2026. The LCT threshold for fuel-efficient cars is $91,661 for 2026-27 (ATO).

Base value is the FBT term for what the car cost your employer, including dealer-fitted accessories. A 100% discount works out the same as the exemption you get today. A 25% discount still leaves you paying FBT on most of the car’s value.

So a long term protects you. Sign a five-year lease on an $85,000 EV in early 2027 and the full exemption runs until early 2032. Sign a two-year lease on the same car and the exemption ends in 2029. After that you’re on a 25% discount, if you want to keep packaging the car at all.

Why “short now, refinance later” can backfire

The plan to start short and refinance later runs into paragraph 1.11 of Treasury’s explanatory materials. It lists what counts as a new commitment for the same car:

• refinancing the car
• changing the terms of an existing contract, such as the lease term or residual value
• fitting accessories that increase the lease payments
• changing employers, even within the same corporate group

Paragraph 1.12 says that when any of these happens, the exemption that applied to the car stops. The car moves to the 100% or 25% discount, depending on when the new commitment is made and the car’s base value. Paragraph 1.13 goes further. People who end a lease early and immediately start a new one just to keep the exemption may be caught by the general anti-avoidance rules.

In practice, a refinance in 2028 on an EV under $75,000 would still get the 100% discount, so little changes. Above $75,000, the same refinance drops you to 25%. Any refinance or extension from April 2029 gets 25% whatever the car cost. Our EV FBT exemption guide has the full rules. Pick the term you want at the start, because changing it later is the expensive way to do it.

Job security and early exits

If you’re worried about losing your job, a shorter term doesn’t reduce the risk much. When your employment ends, the lease reverts to you and the payments come from after-tax income, whatever the term. A short lease actually makes that worse, because its payments are bigger. Our guide to what happens to a novated lease when you change jobs covers redundancy in detail.

Ending the lease early means paying the remaining balance, the residual and fees. SG Fleet lists a $660 early termination fee including GST, which may vary by employer (as of November 2026). Maxxia warns that the payout can be higher than the car’s market value. Used EV prices have fallen fast, so check a valuation against your payout figure before you assume you can sell your way out.

Better protection comes from three places:

• Lease protection insurance. Policies from providers such as Maxxia and Oly can cover up to 10 months of payments after an involuntary redundancy. Not every provider offers it, and voluntary redundancy is usually excluded.
• An emergency fund. Two or three months of after-tax lease payments covers a gap between jobs.
• A cheaper car. A smaller amount financed shrinks every risk at once.

Match the term to the car and your plans

The right term also depends on how long the car will hold up and hold its value. A five-year lease on a new EV ends well inside the usual battery warranty, which we cover in our EV battery warranty guide. Used EVs have limits too. Maxxia says the car should be no more than 12 years old when the lease ends, so an older used EV may not qualify for a long term.

Think about the end of the lease as well. The residual turns you into a seller, a refinancer or a buyer on a fixed date. A longer term with a smaller residual leaves less to fund and less exposure to used-car prices. Our novated lease residual value guide walks through those end-of-lease options.

Your situation	Term that usually fits
Keeping the car long term, EV over $75,000, signing before April 2027	5 years
Keeping the car long term, EV $75,000 or less	4 to 5 years
Likely to sell or upgrade within two years	1 to 2 years, with cash ready for the residual
Unsure about your job	Longer term, a cheaper car and lease protection, not a short term
Buying an older used EV	Whatever keeps the car under the financier’s age limit at lease end

Novated leasing is common enough that providers handle all of these cases. The industry body NALSPA estimates more than 500,000 Australians have a novated lease (ABC, April 2026). Treasury’s statutory review found nearly 100,000 people had used the EV exemption by late 2025, mostly through novated leases. Before you sign, run two or three terms through our novated lease calculator and compare the payment, the residual and the total cost side by side.