A three-way salary packaging arrangement
Novated leasing, explained without the sales pitch.
Whether a novated lease beats a car loan depends on your salary, the vehicle and your employer’s arrangements. We show the comparison honestly.
What is a novated lease?
A novated lease is a three-way agreement between an employee, their employer and a financier, where the employer deducts the lease payments and running costs from the employee’s pre-tax salary. The employee chooses and uses the car; the obligation moves with them if they change jobs.
Under a novated lease the employee enters a lease with a financier, and a deed of novation transfers the payment obligation to the employer while the employee remains the end user. The employer deducts payments from pre-tax salary, reducing taxable income. Fully maintained arrangements bundle fuel, servicing, tyres, registration and insurance into the same deduction, so one figure covers the whole cost of running the car.
The tax picture has two moving parts. Salary sacrificing reduces income tax, but providing a car to an employee creates a fringe benefits tax liability, usually managed through the employee contribution method — post-tax contributions that offset the FBT. Eligible battery electric and plug-in hybrid vehicles under the luxury car tax threshold have attracted an FBT exemption that materially improves the outcome; eligibility rules have changed over time, so current advice matters.
Novated leasing is genuinely good value for higher-income earners with stable employment and a supportive employer, and poor value for people on lower marginal rates, in insecure roles, or buying an inexpensive used car. Leaving your job means the obligation reverts to you personally. Your broker will run the numbers against a straightforward consumer car loan rather than assuming the packaged option wins.
Novated lease at a glance
| Amount | $15,000 – $150,000 |
|---|---|
| Term | 12–60 months |
| Rate type | Fixed |
| Indicative rates (Q3 2026) | 6.9% – 13.5% p.a. · see rate history |
| Security | Secured by the asset |
| Repayments | Deducted each pay cycle from salary |
| Typical speed | 3–10 business days including employer sign-off |
| Best for | Salaried employees on higher marginal tax rates whose employer offers salary packaging |
| Consider something else if | Contractors, sole traders, people in insecure employment, or low-value used car purchases |
| Tax | Involves income tax, GST and FBT interactions. Eligible EVs and PHEVs may attract an FBT exemption. Get advice from your accountant and employer. |
Advantages
- Payments and running costs come from pre-tax salary
- GST savings on the vehicle price and running costs
- One bundled payment covers fuel, servicing and insurance
Trade-offs
- Obligation reverts to you if you leave your employer
- Residual must be paid, refinanced or covered by sale at term end
- Benefit shrinks sharply at lower marginal tax rates
How to apply for a novated lease
- 01
Check employer arrangements
Confirm your employer offers novated leasing and which packaging providers they work with.
- 02
Model against a car loan
Your broker compares the net after-tax cost of the novated lease with a consumer car loan on the same vehicle.
- 03
Novate and drive
Employer, employee and financier sign the deed of novation, deductions begin, and the vehicle is delivered.
Documents lenders commonly ask for
- Recent payslips and employment details
- Vehicle quote and specification
- Employer confirmation of salary packaging arrangements
What people finance with a novated lease
Lenders we compare for this
Macquarie, Flexicommercial, Angle Finance, Pepper Money and others on our panel. See the full panel.
Estimate your repayments
- Number of repayments
- 48
- Total interest (est.)
- $14,245
- Total repaid (est.)
- $89,245
This calculator provides an estimate only and does not account for fees, charges or the specific terms a lender may offer. It is not financial advice or an offer of finance.
Key terms
What is a novated lease?
A novated lease is a vehicle lease where a deed of novation transfers the employee’s lease payment obligations to their employer, who deducts the payments from the employee’s pre-tax salary. The employee selects and uses the vehicle throughout the term.
What happens to a novated lease if you change jobs?
The novation ends and the lease obligation reverts to the employee personally. It can then be re-novated to a new employer who offers salary packaging, paid from post-tax income, or paid out entirely.
What is the employee contribution method?
The employee contribution method is where an employee makes post-tax contributions towards the running costs of a packaged vehicle, reducing or eliminating the employer’s fringe benefits tax liability on the car.
Is a novated lease better than a car loan?
It depends on marginal tax rate, vehicle choice, employment stability and the employer’s packaging arrangements. Higher-income earners with secure employment often benefit; lower-income earners and those buying inexpensive used cars often do not.
Novated lease FAQs
What is a novated lease and who is it for?
A novated lease is a three-way arrangement between an employee, their employer and a financier, where the employer deducts the vehicle payments from the employee's salary. It is only available to employees whose employer offers salary packaging, not to a business buying its own vehicle. The tax treatment involves fringe benefits tax rules, and concessional treatment applies to some eligible electric vehicles. Your payroll department and accountant should confirm the position before you sign.
Is finance for electric vehicles different?
The finance structures are the same — chattel mortgage, lease or novated lease — but a few things change. Some lenders offer specific EV or low-emissions products, residual and balloon settings can be more conservative because resale values are still stabilising, and charging infrastructure can sometimes be financed alongside the vehicle. For employees, eligible electric vehicles under the luxury car tax threshold may attract an FBT exemption on a novated lease. Confirm current rules with your accountant.