Novated Lease vs Buy Calculator

Novated lease vs buying a car: what the numbers actually show

The novated lease question is one of the most misunderstood financial decisions in the Australian workplace. The marketing from salary packaging providers makes it sound like free money, while sceptics argue the lease fees eat up the savings. The truth is more nuanced, and it depends almost entirely on three variables: your salary, the vehicle price, and whether the car is a battery electric vehicle.

For eligible BEVs, the case for a novated lease is genuinely strong. The combination of two tax advantages - the FBT exemption and pre-tax running costs - means the after-tax cost is materially lower than either cash purchase or a car loan. For petrol cars, the FBT liability partially offsets the pre-tax benefit, and the equation is far less clear.

Why the FBT exemption changes everything for EVs

Under the statutory method, the taxable value of a company or novated lease car is 20% of the vehicle price per year. On a $65,000 car, that's $13,000 of taxable value annually. FBT is then levied on this amount at 47%, plus the FBT gross-up rate - resulting in roughly $6,110 per year in FBT for a petrol car under a novated lease.

For eligible BEVs under the FBT exemption, this liability is zero. The employer (or fleet provider) does not pay FBT, which means the full pre-tax benefit of packaging the car passes through to the employee. This is why the saving shown in this calculator scales significantly with income: the higher your marginal rate, the more valuable the pre-tax treatment.

At a $120,000 salary (39% marginal rate), packaging a $65,000 EV under a novated lease saves approximately $15,000–$20,000 over five years compared to buying the same car with a loan. At $80,000 salary (34.5% marginal rate), the saving is smaller but still significant at approximately $10,000–$14,000.

The running costs advantage most people overlook

The FBT exemption gets most of the attention, but the pre-tax packaging of running costs is the less-discussed saving that adds up meaningfully over time. Under a novated lease, costs including registration, insurance, servicing, and EV charging are included in your pre-tax package. If you're in the 39% tax bracket, every $1,000 of running costs packaged pre-tax effectively costs you $610 - a 39% saving on costs you'd be paying anyway.

Over five years with $5,500 in annual running costs, this pre-tax treatment saves approximately $10,700 at the 39% marginal rate. Combined with the FBT saving, the total tax advantage is substantial.

When a novated lease is not the right choice

A novated lease is not universally the best option. Situations where it may not be:

• You're likely to change jobs: If you leave your employer mid-lease, you typically need to either pay out the remaining lease balance from post-tax income or arrange for the new employer to take over the lease. The financial impact of a forced early termination can erase the tax savings. If your employment situation is uncertain, the risk should factor into the decision.
• The car is over the FBT threshold: Above $91,387 drive-away (for 2025-26), the FBT exemption no longer applies. You'd pay the full FBT liability, which partially offsets the income tax saving. The net benefit is significantly smaller, and in some scenarios a cash purchase or loan is more cost-effective.
• You drive very few kilometres: A lower km budget typically means the packaged running costs are lower, reducing the value of the pre-tax treatment. The lease repayment is fixed regardless of km, so very low-use scenarios can make the effective cost per kilometre high.
• Your marginal rate is 32.5% or lower: Below the 37% threshold ($120,000), the income tax saving on pre-tax packaging is still meaningful, but the margin over a competitive car loan narrows. At lower income levels, a straightforward purchase or loan with no ongoing packaging fees can close the gap.

The residual value: buying out vs handing back

At the end of a novated lease, the ATO requires a minimum residual payment to be set at the start. For a five-year lease, the minimum residual is 28.13% of the original vehicle price - roughly $18,285 on a $65,000 car. You can either pay this out of post-tax income to keep the vehicle, or hand the car back to the provider.

The residual payment is important to understand because it affects the true total cost comparison with a cash purchase. If you pay the residual and keep the car, you effectively own it at the same total cost as if you'd purchased - but you've benefited from three to five years of tax savings on the monthly payments and running costs. If you hand the car back and start another lease, the cycle of tax savings continues, but you never own the asset outright.

For most buyers, the optimal strategy is to pay the residual and retain the car, particularly for EVs that depreciate more slowly than petrol equivalents due to strong resale demand in Australia's maturing EV market.

What this means for the most popular EVs in Australia

The Tesla Model Y RWD at $58,900 drive-away is well under the $91,387 threshold and represents one of the most compelling novated lease candidates in the market. At a $120,000 salary over five years, the total after-tax cost under a novated lease is approximately $25,000–$30,000 less than financing with a car loan. The BYD Sealion 7 at $54,990, the MG4 Excite 64 at $37,990, and the Kia EV6 all sit comfortably under the threshold and benefit from the same analysis.

The Kia EV9 Earth AWD at $109,000 exceeds the threshold, eliminating the FBT exemption. For higher-priced luxury EVs, a different financial analysis applies and the novated lease advantage is significantly diminished.

How to use these figures

This calculator uses standard ATO residuals, current marginal tax rates for 2025-26, and a representative finance factor for the lease repayment estimate. It gives you an accurate directional comparison - the structure of the saving is correct even if the exact number your salary packaging provider quotes will differ based on their specific fees and the exact interest rate on the lease finance.

The next step is to request a formal novated lease quote from your employer's salary packaging provider (or a broker like RemServ, sgfleet, or Maxxia), which will give you the exact pre-tax payment, residual, and final cost. Use this calculator to sense-check any quote you receive and to understand what levers drive the saving.