Novated leasing has been around for years, so why the recent surge in interest? Quite simply, instead of paying cash or taking out a traditional car loan, a novated lease helps your tax dollars to work harder.
Over 500,000 savvy Australians have discovered that paying off their cars through a novated lease can unlock big savings, especially with government incentives for electric vehicles (EV).
But changes to EV tax breaks are on the horizon. So, you might be asking yourself whether novated leasing is still the right move. Let's break down the main pros and cons.
What Is a Novated Lease in Australia?
Despite the fancy financial jargon, it is less complicated than it seems. Think of it as a three-way arrangement between you, your employer, and a finance provider like our partner, Oly.
One of the biggest perks? Your lease payments come directly from your pre-tax salary, which is where the real savings begin.
Is a novated lease a good way to reduce taxes?
Yes, but how much depends on your tax bracket. Your employer leases the car on your behalf for 1 to 5 years. Because your payments are deducted from your pre-tax salary, this reduces your taxable income.
Let’s say your annual salary is $80,000 or above (placing you in the 30% or 37% marginal tax bracket). The pre-tax savings you’ll get from a novated lease are definitely worth considering. To make life easier, a typical lease bundles the vehicle’s running costs (fuel or charging, insurance, registration, servicing, new tyres etc.) into one single regular deduction. No more juggling separate bills.
You also save on Goods and Services Tax (GST) for cars valued up to $69,674, which can be a substantial amount. If your chosen car's driveaway price exceeds $69,674, you pay GST only on the excess. Plus, some of your packaged running costs will be GST-free.
For those earning under $60,000 annually, however, the pre-tax savings will be comparatively modest.
And if you change jobs before the lease ends, things can get a little tricky. More on that below.
Best EVs to buy under a novated lease
Remember when petrol prices began to skyrocket in March? Hundreds of motorists chose to go electric for less through novated lease arrangements.
Thanks largely to a government incentive, which made eligible EVs exempt from Fringe Benefits Tax (FBT), there are excellent savings on popular models like the Tesla Model 3, BYD Atto 3, BYD Atto 2, MG ZS EV, Hyundai Ioniq 6 and Kia EV6.
While plug-in hybrids are no longer eligible for FBT tax concessions, the EV limit sits at $91,661 for the 2025-26 financial year, leaving you plenty of fantastic vehicle choices.
Even better, these tax savings extend to eligible used EVs, provided they were ‘held or used’ on or after 1 July 2022. *
Come mid-2027, the government will review EV adoption rates and most likely adjust the exemption rules. For now, a novated lease is an avenue to some serious savings. So, if you’ve been eyeing a pre-owned Tesla Model 3 or BYD Atto 2, this is the ideal time to enjoy zero FBT.
How owning your car works
The length of a novated lease is flexible, usually between 1 and 5 years. Thereafter, ownership does not transfer automatically. To officially make the car yours, you pay a final sum known as the residual (or balloon) payment. Most motorists either pay this amount or roll the lease into a brand-new agreement to upgrade their ride.
Is a novated lease worth it in 2026?
Like any financial decision, it pays to crunch the numbers and chat with your accountant. Here are four quick questions to keep in mind:
1. What is included in your monthly payment?
2. What is the level of insurance coverage that’s included?
3. How does the residual payment work?
4. What happens if you change jobs?
Novated leasing and your employer
How much do you love your job? Job satisfaction matters since you’ll be leasing the car through your employer. To keep the lease, you must stay in your job for the duration. Changing jobs mid-lease means you’ll have to take over the lease payments (no pre-tax savings) or pay a termination fee.
Additionally, because a lease lowers your take-home pay, mortgage lenders will treat it as a financial commitment, which could impact your borrowing capacity.
So, is a novated lease worth it in 2026?
If you enjoy job stability, earn $80,000+ per year, and already have your mortgage sorted, a novated lease on an eligible EV could be your fast track to significant savings.
To test-drive your finance options and see how much you could save, reach out to our team.
*As long as a luxury tax wasn’t applied to the vehicle. You can find out the full rules here, https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/electric-cars-exemption