Novated lease FAQs

A three-way arrangement between you, your employer and a lease provider. You choose the car, the provider leases it, and your employer agrees to make the payments out of your salary. Most of that payment comes out before tax, which is where the benefit comes from. If you leave the job, the lease goes with you and the obligation returns to you.

Part of your salary goes to the car before income tax is calculated, so your taxable income falls and you pay less tax. The size of the benefit depends on your marginal rate: someone in the 45% bracket saves more per dollar packaged than someone in a lower one. There is usually a GST saving on the purchase and on running costs as well, because the provider claims the credit.

Yes. A novated lease cannot exist without your employer signing the deed. Many larger employers already offer it through a salary packaging provider. Smaller employers often can, but are not obliged to, and some decline because of the administration.

The novation ends and the lease reverts to you. You can ask a new employer to take it on, keep paying it yourself from after-tax income, or in some cases pay it out. This is the part people most often overlook when they sign, because it turns a pre-tax arrangement into an after-tax one overnight.

Not on business income alone. A novated lease needs an employer paying you a salary through the payroll. If you run a company and pay yourself a wage, the company can act as the employer, which is a common arrangement. A sole trader with no employment relationship cannot novate.

Not the tax outcome. Income tax, FBT and the luxury car tax threshold are all federal and identical everywhere in Australia. What does change by state is registration, stamp duty and CTP, which affect the cost of getting the car on the road rather than the tax treatment of the lease.

Mainly choice and transparency, and the difference varies by dealer. A dealer referral is usually to a single provider the dealership has a relationship with, and the car is the one on their lot. A specialist arranges the lease independently of where the car comes from, so the vehicle and the finance are two separate decisions rather than one. Ask any provider the same questions: which financiers they can access, whether the car is sourced competitively or fixed to one dealership, what fees are in the payment, how running-cost budgets are set and what happens to a surplus, and what the end-of-lease options are. The answers matter more than the label.

A car qualifies when it is a battery electric or hydrogen fuel cell vehicle, it was first held and used on or after 1 July 2022, and its value was below the fuel-efficient luxury car tax threshold at first retail sale and at every sale since. For 2026-27 that threshold is $91,661.

No, and this is where most published lists go wrong. The test uses the luxury car tax value: the GST-inclusive price of the car plus any options or accessories supplied with it. Stamp duty, registration and CTP are not counted. Comparing a driveaway price to the threshold overstates the value by thousands and can rule out a car that actually qualifies.

The exemption is lost entirely. There is no partial exemption and no sliding scale. A car one dollar over gets nothing, which is why the options list matters so much: a paint choice or a towbar fitted at the same time counts towards the value.

Not for new arrangements. From 1 April 2025 a plug-in hybrid is no longer treated as a zero or low emissions vehicle for FBT purposes. Arrangements committed to before that date can continue under transitional rules, but they depend on the commitment having been genuinely binding at the time.

It has no end date. The Treasury Laws Amendment (Electric Car Discount) Act 2022 contains no sunset provision for battery electric and hydrogen fuel cell vehicles. The only termination in the Act applies to plug-in hybrids, which lost eligibility for new arrangements from 1 April 2025. What the Act does contain is a statutory review, which is a different thing from an expiry: the exemption continues until Parliament changes the law, and no change has been legislated.

Yes, and the review is written into the Act itself. Schedule 1 item 8 requires the Minister to commission a review of how the exemption has operated, covering the three years from when it commenced, a period that ended 1 January 2026. The review must consider whether the provisions should continue and what types of vehicle should be covered, and it must include public consultation. The report is due to the Minister by 1 July 2027 at the latest, then must be made public within 28 days and tabled in both Houses within 15 sitting days. A review is not a repeal. It is the mechanism Parliament built in to decide what happens next.

Any change would need new legislation, and the way the last change was handled is the best guide to how the next one would be. When plug-in hybrids lost eligibility, arrangements already committed to before the cut-off could continue under transitional rules. That is the usual pattern for this kind of change, because retrospectively taxing arrangements people had already entered into is politically and practically difficult. It is not a guarantee, and the transitional rules turned on the commitment being genuinely binding at the time.

Yes, if it was first held and used on or after 1 July 2022 and was never subject to luxury car tax, including when it was first sold new. A car that attracted LCT when new stays outside the exemption for the rest of its life, no matter what it is worth later.

The ATO publishes a shortcut rate so you do not have to separate car charging from household electricity. For the 2026-27 FBT year it is 5.47 cents per kilometre. You can use actual costs instead if you can substantiate them, and the choice applies per vehicle for the whole year.

Not as a car expense. The ATO is explicit that a home charging station is not a car expense associated with providing a car fringe benefit, so it does not ride on the electric car exemption the way the electricity does. It may instead be a property fringe benefit or an expense payment fringe benefit, which is a different treatment. Some employers and providers will package the hardware under those rules and some will not, so it is a question to ask rather than an assumption to make.

Yes. Electricity used to charge an eligible electric car is an associated car expense and is exempt alongside the car, in the same way fuel would be for a petrol car. Because home charging mixes with the rest of the household bill, the ATO publishes a shortcut rate to work out the cost: 5.47 cents per kilometre for the 2026-27 FBT year. Actual costs can be used instead if you can substantiate them.

Yes. An exempt electric car is still a reportable fringe benefit. The exemption removes the fringe benefits tax your employer would pay; it does not remove the reporting. The amount appears on your income statement each year.

Because several income tests add it back. Income for Medicare levy surcharge purposes, Division 293 purposes and compulsory study loan repayments all include reportable fringe benefits. Your taxable income falls, but those tests still see the benefit, so a lease can increase what you owe under them even while reducing your income tax.

Division 293 is an extra 15% tax on concessional super contributions for higher earners. It applies where your Division 293 income plus those contributions exceeds $250,000. That income calculation includes reportable fringe benefits, so a novated lease can push someone over the line who would otherwise sit under it.

It can. Repayment income includes reportable fringe benefits regardless of your employer type, so the reported amount is added back even though your taxable income has gone down. For someone near a repayment threshold this can offset part of the tax saving.

Fringe benefits tax is paid by the employer, not the employee, at 47% on the grossed-up value of a benefit. For a car valued under the statutory formula, the taxable value is 20% of the base value. On an eligible electric car the exemption removes this liability, which is what makes those cars attractive to package.

A way of reducing FBT on a car that is not exempt. You pay part of the running cost from after-tax salary, which reduces the taxable value of the benefit, often to nil. It means less of your packaging is pre-tax, so the headline saving is smaller than on an exempt electric car.

Yes. The levy is 2% of taxable income and applies on top of income tax. Reducing your taxable income through a lease reduces the levy proportionally, which is included in any saving figure on this site. The Medicare levy surcharge is a separate thing and works against you, because it counts reportable fringe benefits.

Usually the finance on the car plus a budget for running costs: registration, insurance, servicing, tyres, and fuel or charging. Bundling running costs is where much of the GST saving comes from. What is actually included varies by provider and by quote, so it is worth reading the inclusions rather than assuming.

The amount still owing at the end of the lease. The ATO sets minimum residuals by lease term, so a shorter lease carries a higher residual percentage. At the end you can pay it and keep the car, refinance it, or sell the car and settle the difference. If the car is worth less than the residual, the shortfall is yours.

It depends on your marginal rate, whether the car is FBT exempt, and how much you drive. The tax treatment is the main difference: lease payments come from pre-tax salary while loan repayments come from after-tax income. Against that, a lease has a residual and finance costs that a cash purchase does not. It is worth running the numbers on your own salary rather than relying on a rule of thumb.

You pay the residual and keep the car, refinance the residual into a new term, or sell the car and settle up. Selling can leave you ahead or behind depending on what the car is worth against the residual. Re-leasing a new car is also common, which is how many people end up in a rolling arrangement.

Generally yes, if you are genuinely an employee of the company and take a PAYG salary from it. A novated lease needs an employer to make the payments out of your salary, and your own company can be that employer. Owning the company does not disqualify you. What can stop it working is the personal services income rules, which limit what the company can deduct, and the provider's own assessment of a small or newly incorporated employer.

Usually not, where you receive it as an employee. Division 7A does not apply to a payment made to a shareholder, or a shareholder's associate, in their capacity as an employee, because the fringe benefits tax rules deal with it instead. That makes the employment relationship the thing to get right: a genuine PAYG salary through the payroll is what puts you in the employee category. Loans and debt forgiveness are the exception and stay inside Division 7A even in an employee capacity.

Where the PSI rules apply, the business can claim car expenses, including any FBT paid, for one car only per individual if the car has private use. If your company already provides you a car with private use, a novated lease would be the second car and the second car is not deductible. Two exceptions: where two or more individuals work through the one company, it can provide one car each, and a car with genuinely no private use is not caught. Whether the PSI rules apply to you at all depends on the results test and the other personal services business tests, which is a question for your accountant.

Yes. The arrangement works by deducting the lease payment from salary, so there has to be salary. A company that pays its owner only in dividends has nothing to sacrifice from and no employment relationship to hang the benefit on. The salary should be genuine, run through the payroll and reported through Single Touch Payroll, not a figure written up at year end.

Yes. The exemption is not restricted by the size or type of employer, so a one-person company accesses it on the same terms as a large one. The car still has to meet the test: battery electric or hydrogen fuel cell, with a luxury car tax value at or under $91,661, and never subject to luxury car tax. The reporting obligation remains either way, so the benefit still appears on your income statement.

No, and this is the most expensive thing to get wrong. State duty concessions are generally graded on tailpipe emissions, so an efficient petrol or hybrid car can qualify for them. The federal FBT exemption is not graded: the car has to be battery electric or hydrogen fuel cell, and its luxury car tax value has to be at or under $91,661. A hybrid can therefore win the state concession and get nothing federally. The state break is usually a few hundred dollars, paid once. The exemption is worth thousands, every year of the lease.

No. Luxury car tax value is the GST-inclusive price of the car plus anything supplied with it, such as options, accessories and dealer-fitted extras. Stamp duty, registration and CTP are excluded. That is why the state you live in cannot push a car over or under the $91,661 threshold: on-road costs differ between states, and none of them count. Comparing a driveaway price to the threshold overstates the value and wrongly rules out cars that are eligible.

Not on its own. Victoria legislated a distance-based charge on zero and low emission vehicles, and in Vanderstock v Victoria [2023] HCA 30 the High Court held the charge invalid by a four to three majority. It was a duty of excise, and section 90 of the Constitution gives the Commonwealth exclusive power to impose those. The decision applies to every state and territory, not just Victoria. It does not prevent the Commonwealth legislating a road user charge, which has been under discussion, so this is a question worth revisiting rather than treating as settled forever.

No. A novated lease is an agreement between you, your employer and the lease provider, and none of the tax rules that make it work depend on either party being in a particular state. The car is registered where it is garaged, which is what sets the registration, duty and CTP costs. Your employer may have its own considerations, including payroll tax, which does vary by state, and those are questions for them rather than assumptions to make on their behalf.

Usually little or nothing directly, because the payments come out of your salary rather than on top of it, and an eligible electric car carries no FBT. It is not automatically neutral though. The employer takes on the administration, has an FBT reporting obligation even for an exempt car, and depending on the state and how the arrangement is structured there can be payroll tax and superannuation base implications. Those are questions for the employer to check rather than assumptions to make on their behalf.

Three things, and none of them are ongoing work. Sign the novation deed, set up the deduction in payroll, and report the fringe benefit at the end of the FBT year. The lease provider handles the vehicle, the finance, the running-cost budget and the employee. The reporting step applies even to an FBT-exempt electric car, because exempt is not the same as unreportable.

The novation ends and the lease obligation returns to the employee. The business is not left holding the car or the payments. The practical work is stopping the payroll deduction and notifying the provider. Some employers ask for a clause covering the final pay cycle, which the provider can usually accommodate.

No. Offering a novated lease to one employee does not oblige a business to offer it to all, and most employers handle requests case by case. Some set a policy once they have done a few, which mainly saves repeating the same decision.

It can, and it depends on the state and on how the arrangement is structured. Salary sacrificed amounts are treated differently across state payroll tax regimes, and the superannuation guarantee is calculated on ordinary time earnings, which an effective salary sacrifice arrangement can change. These are worth confirming with whoever handles the payroll before the first one is set up, not after.

Business size is not the test. What matters is that there is an employment relationship with salary paid through a payroll, and that the business is willing to sign the deed and run the deduction. Providers set these up for businesses with a handful of staff regularly. The practical barrier is usually administrative appetite rather than headcount.

Usually not. Most published figures assume a single salary, ignore the Medicare levy surcharge, Division 293 and study loan effects, and quote the tax difference rather than the change to your take-home pay. A quote on your actual salary, your actual car and your actual employer is the only figure that means anything.

Four things, all straightforward to plan around. The lease follows you rather than the job, so it becomes an after-tax arrangement if you leave and a new employer does not take it on. There is a residual to settle at the end, which you can pay, refinance or cover by selling the car. The benefit is reported on your income statement and counts towards income-tested obligations. And the term is fixed, so it suits a settled few years better than an uncertain one.

No. Novii is an information and referral service. We explain how novated leasing works and pass your enquiry to a lease provider if you ask. We are not a lessor, financier or adviser, we are not a party to any lease, and we may receive a benefit if you proceed.