Novated Lease vs Car Loan for an EV in Australia: Which Actually Saves More?

If you earn a decent salary and your employer offers salary packaging, a novated lease on a battery electric vehicle is one of the most tax-effective ways to run a car in Australia right now. But “tax effective” is not the same as “always cheaper,” and the Reddit question - is a novated lease actually worth it versus just getting a car loan for an EV? - is the right one to ask before signing anything.

Here is an honest comparison with real numbers.

How a novated lease works

A novated lease is a three-way agreement between you, your employer, and a finance company. Your employer deducts lease payments from your pre-tax salary before income tax is calculated. That reduces your taxable income, which is where the saving comes from.

Under a standard novated lease, you also pay running costs - fuel (or electricity), registration, insurance, tyres, and servicing - from the same pre-tax pool. The vehicle technically belongs to the finance company for the lease term. At the end, you either pay a residual (a lump sum to own the car outright), re-lease, or hand the car back.

Normally, the ATO treats a car provided through salary packaging as a fringe benefit and charges Fringe Benefits Tax at 47% on the taxable value. For battery electric vehicles priced under the LCT threshold of $91,387, that FBT is currently waived entirely under the Treasury Laws Amendment (Electric Car Discount) Act 2022.

That exemption is the entire engine of the novated lease saving for EVs.

How a car loan works

A car loan is straightforward. A bank or lender advances you money to buy the vehicle. You own it from day one (subject to the lender’s security interest). You repay principal and interest over an agreed term - typically two to seven years. Repayments come from your after-tax income, so there is no salary packaging involved and no FBT complexity.

The maths: $65,000 Tesla Model 3 Long Range

Take an employee earning $120,000 gross salary in New South Wales, purchasing a Tesla Model 3 Long Range priced at $65,000 drive-away. Both scenarios use a three-year term.

Marginal tax rate at $120,000: The top slice of income at this level falls in the 37% bracket, plus the 2% Medicare levy, for an effective marginal rate of 39%.

Novated lease scenario

A typical novated lease on a $65,000 vehicle over three years at 7.5% finance rate with a 35.2% residual (ATO minimum for three years) produces:

• Monthly lease payment: approximately $1,490 (pre-tax)
• Annual lease cost: $17,880 pre-tax
• Annual income tax saving at 39%: $6,973
• Annual net cost of lease payments after tax saving: $10,907

FBT exemption saving: Annual FBT that would otherwise apply = 47% × 20% × $65,000 = $6,110 per year Over three years: $18,330 avoided.

Running costs (electricity, rego, insurance, tyres, servicing): approximately $4,200 per year pre-tax, saving a further $1,638 per year in tax at 39%.

Total cost over three years:

• Lease payments (net of tax): $32,721
• Running costs (net of tax): $7,716
• Residual payment at end of term (35.2% of $65,000): $22,880
• Total outlay: $63,317

You own the car at the end after paying the residual.

Car loan scenario

Same $65,000 vehicle, three-year secured car loan at 7.9% comparison rate.

• Monthly repayment: approximately $2,037
• Total repayments over three years: $73,332
• Total interest paid: $8,332

Running costs of $4,200 per year come from after-tax income (no packaging benefit):

• After-tax running cost over three years: $12,600

Total outlay over three years: $85,932

The difference

	Novated Lease	Car Loan
Finance cost (net)	$32,721	$73,332
Running costs (net)	$7,716	$12,600
Residual	$22,880	-
Total	$63,317	$85,932

The novated lease saves approximately $22,615 over three years for this employee at this income level. That is a real, material saving - roughly $7,500 per year - driven almost entirely by the FBT exemption and pre-tax salary deductions.

Why the saving varies by income

The novated lease benefit scales with your marginal tax rate. At 39% effective marginal rate (the $45,001–$120,000 bracket plus Medicare), the pre-tax deduction saves meaningfully. At the 47% effective rate (income above $180,000), the saving is even larger - the same lease costs less in after-tax dollars.

At lower incomes, the saving shrinks. Someone earning $45,000 sits in the 19% bracket (21% effective with Medicare). The salary packaging benefit is modest, and the FBT exemption saving remains the same in dollar terms but the overall equation becomes much tighter. For incomes below about $45,000, the hassle and residual obligation of a novated lease may not justify the saving over a straightforward car loan with a competitive rate.

When a car loan is the better choice

A car loan wins in the following situations:

Your employer does not offer novated leasing. Without employer participation, there is no novated lease. End of discussion. Many small businesses, sole traders, and casual employers do not offer salary packaging arrangements.

You want simple, outright ownership. A car loan gives you title from day one. No residual decision in three years, no re-lease negotiation, no dependence on your employer’s continued participation. If you change jobs, a novated lease can be transferred to a new employer, but that process requires your new employer to agree and involves administration.

You plan to hold the car for less than two years. Novated leases carry establishment fees ($500–$1,500 typically), management fees, and a residual that must be paid or refinanced. Over short periods, those fixed costs erode the tax saving.

The vehicle exceeds the LCT threshold. A Tesla Model Y Long Range or Performance variant priced above $91,387 loses the FBT exemption. Without the exemption, the novated lease still offers salary packaging benefits, but the FBT liability can be large enough to negate them. Run the specific numbers before assuming a novated lease still wins.

PHEVs. Plug-in hybrid vehicles lost eligibility for the FBT exemption from 1 April 2025. If you are considering a PHEV, the standard FBT rules apply and the analysis changes significantly.

What to watch in the fine print

Novated lease comparison rates vary between providers. The headline pre-tax payment can obscure a high underlying finance rate. Always ask for the comparison rate and total amount payable.

Residual values are set by the ATO as a minimum percentage of the original cost. You can set a higher residual (lower monthly payments, larger end payment) but not lower. Make sure you have a plan for the residual before you sign.

Budgeting tools provided by novated lease companies typically present the best-case scenario for high earners. Run your own numbers using your actual marginal rate, or ask your accountant to model it.

The bottom line

For an Australian employee earning above $80,000 with an employer who offers salary packaging, a novated lease on an eligible battery electric vehicle under $91,387 is genuinely advantageous - often by $15,000 to $25,000 over a three-year term compared with a car loan. The FBT exemption is doing most of that work.

For everyone else - lower incomes, employers without salary packaging, short holding periods, or PHEV buyers - a competitive car loan from a bank or credit union is simpler, more flexible, and often cheaper once fees and the residual are factored in.

The question is not which option sounds better. It is which one costs less given your specific income, your employer, and how long you actually intend to keep the vehicle.

Based on average Australian electricity rates, charging an eligible EV under the novated lease scheme at home costs approximately 4–5 cents per km — a fraction of petrol running costs. See our EV charging cost guide for a full breakdown by tariff type and state.

Use our FBT savings calculator to model the annual saving for your salary and vehicle price before speaking to a lease provider. For a detailed breakdown of how the FBT exemption itself works and which vehicles qualify, see our EV FBT exemption guide. State-specific benefits stack on top of the FBT exemption — Queensland adds stamp duty and registration savings on top (QLD EV rebates), as do NSW (NSW EV rebates) and Victoria (VIC EV rebates). Browse qualifying models on the electric vehicles hub.