Novated Lease Calculator Australia

How a novated lease works

A novated lease is a three-way agreement between you, your employer and a finance company. You choose a car and lease it; your employer takes over (novates) the lease payments and pays them, together with a budget for fuel or charging, servicing, tyres, insurance and registration, out of your salary. Most of the cost comes out of your pre-tax salary, which cuts your income tax. If you leave the job, the lease reverts to you.

Because the car is provided by your employer, it is a car fringe benefit. Unless it is exempt, fringe benefits tax (FBT) at 47% applies to its taxable value. Novated leases avoid paying FBT in two ways: the electric car exemption, or the employee contribution method (ECM).

Your employer (or its packaging provider) also claims the GST on the purchase price and running costs. The GST credit on the car is capped at one-eleventh of the car limit, $69,883 in 2026–27 (so at most $6,353), and it reduces the amount financed.

FBT statutory formula and the employee contribution method

Under the statutory formula in s 9 of the FBT Assessment Act, the taxable value of a car is 20% of its base value each FBT year (1 April to 31 March), pro rata for days available, less any after-tax contributions you make. The base value is the GST-inclusive cost including dealer delivery and dealer-fitted accessories, but not registration or stamp duty. It drops to two-thirds once the car has been held for more than four full FBT years.

With the employee contribution method, you pay part of the running costs from after-tax pay equal to the taxable value. That reduces the taxable value to nil, so no FBT is payable. For a $55,000 car that is $11,000 a year after tax (the employer remits $1,000 of it as GST). The rest of the package comes out of pre-tax pay.

The operating cost method (s 10) is the alternative. It uses actual costs and a logbook, and only helps if a large share of the car's use is for work.

Electric car FBT exemption

Since 1 July 2022, a car benefit is exempt from FBT if the car is a zero or low emissions vehicle (a battery electric or hydrogen fuel cell car), it was first held and used on or after 1 July 2022, and no luxury car tax was payable on it. In practice that means a price at or below the luxury car tax threshold for fuel-efficient vehicles: $91,661 in 2026–27 ($91,387 in 2025–26). Plug-in hybrids stopped qualifying from 1 April 2025, except under a binding commitment made before that date.

With no FBT, there is no need for after-tax contributions: the whole package comes out of pre-tax salary. The exempt benefit is still reportable, though. The $11,000 taxable value is grossed up by 1.8868 and appears on your income statement as a $20,754 reportable fringe benefit. It is not taxed, but it counts towards HELP repayments, the Medicare levy surcharge, the private health insurance rebate and some family payments. With a HELP debt, the EV example costs $595 a year more.

In the May 2026 Budget the government announced it will phase down the exemption. Under the exposure draft (not yet law at October 2026), leases committed to before 1 April 2027 keep the full exemption; for new commitments the exemption is replaced by a reduced statutory fraction: 0% for cars up to $75,000 and 15% between $75,000 and the LCT threshold until 1 April 2029, then 15% for all eligible cars. The calculator uses the law as it stands.

Worked example: $55,000 electric car vs petrol car on $100,000

Both cars cost $55,000 plus $3,500 on-road costs, on a 5-year lease at 8% with the ATO minimum residual of 28.13% ($15,472 incl. GST at the end), $5,500 a year of running costs, $900 rego and a $15 monthly fee. After GST credits the package costs $16,784 a year; the lease payment is $983 a month.

Electric car (FBT exempt): all $16,784 comes out of pre-tax pay. Take-home pay falls by $11,413 a year ($439 a fortnight). Paying the same lease and running costs from after-tax pay would cost $18,372, so the lease saves $6,959 a year.

Petrol car (ECM): $11,000 is paid after tax and $6,784 before tax. Take-home falls by $15,613 a year ($601 a fortnight), a saving of $2,759. Without the ECM the employer would face about $10,755 of FBT, which is why packaging providers almost always use it.

Minimum residual (balloon) by lease term

The ATO sets minimum residual values for car leases (TD 93/142). At the end you pay the residual, refinance it, or sell the car. Residuals are a percentage of the cost excluding GST:

Novated lease vs salary packaging and salary sacrifice

A novated lease is one kind of salary packaging. Charities, public hospitals and public benevolent institutions can package other living costs up to their FBT caps, and a novated lease sits on top of those caps. Salary sacrifice into super is separate again: it is taxed at 15% in the fund and limited by the concessional cap. Use the salary packaging calculator and salary sacrifice calculator for those.

• Compare the lease's interest rate and fees with a plain car loan; packaging providers' margins on running-cost budgets vary.
• Ask what happens if you resign or are made redundant: the lease becomes yours, without the tax benefit.
• Home charging: an EV can use the ATO's home charging rate (5.47 cents per km for the FBT year from 1 April 2026) to cost electricity in the package.
• Any unused running-cost budget is usually reconciled at the end of the year or lease.