How does a novated lease save me tax?

In a novated lease, your employer deducts lease payments from your pre-tax salary, reducing your taxable income. This means you pay less income tax. The saving depends on your marginal tax rate — the higher your salary, the greater the benefit.

What is FBT on a novated lease?

Fringe Benefits Tax (FBT) is a tax your employer pays on non-cash benefits, including novated leases. Under the statutory method, FBT = car value × 20% × gross-up rate × 47%. The cost is typically passed back to you via a post-tax employee contribution (ECM), which also reduces your FBT liability.

Are electric vehicles FBT exempt on a novated lease?

Yes — battery EVs (and some PHEVs until April 2025) priced below the fuel-efficient LCT threshold ($91,387 in FY2025-26) are fully exempt from FBT under a novated lease. This makes EVs significantly cheaper to run through a novated arrangement.

What is the residual value on a novated lease?

The residual is the minimum amount owing at the end of the lease, set by the ATO based on annual kilometres driven. For 15,000 km/yr over 3 years the statutory minimum residual is 52.88% of the vehicle price. You can pay the residual and keep the car, refinance it, or trade in.

Novated Lease Calculator Australia 2025–26

Your situation

Salary and location determines your tax saving

Gross annual salary

Before tax, excluding super

State

For stamp duty calculation

Lease term

1–5 years

Your vehicle

Price and usage determine FBT and residual

Vehicle price (drive-away)

Including GST, excluding rego and CTP

Annual kilometres

Affects ATO statutory residual

Vehicle type

Battery EVs under $91,387 are FBT-exempt — a major advantage

Novated lease interest rate

Provider rate — typically 6–8%. Adjust to your quoted rate.

6.50%

Provider passes on GST credit on purchase Most providers finance the car ex-GST — the financier claims the GST input credit on the purchase (capped at $6,334). Untick if your employer/provider doesn't pass this on.

Running costs

Packaged into salary sacrifice — adjust to your vehicle

Fuel / charging per year

Insurance per year

Registration per year

Servicing per year

Tyres per year

Provider fee per year

Management fee charged by provider

Annual tax saving

—

— per month

Monthly payment (pre-tax)

—

— post-tax contribution

Residual at end of lease

—

— of vehicle price

True total cost

—

— year term

Take-home pay impact

How your fortnightly pay packet changes with salary sacrifice

Without novated lease

Gross salary—

Income tax—

Medicare levy—

Take-home (fortnightly)—

→

With novated lease

Gross salary—

Pre-tax deduction—

Income tax—

Medicare levy—

Post-tax contribution—

Take-home (fortnightly)—

—

net fortnightly change after deductions and contributions

How this works: Your employer deducts the pre-tax lease payment from your gross salary before calculating income tax. This reduces your taxable income, so you pay less tax. The post-tax contribution (if any) covers your FBT obligation. The net effect is that you effectively pay for the car partly with money that would otherwise have gone to the ATO.

Fringe Benefits Tax (FBT) — step by step

Most providers hide this calculation. Here it is, transparently.

Car value (base value for FBT)

The FBT base value is the original cost of the vehicle including GST and dealer delivery, but excluding registration and CTP. This is the value from which all FBT is calculated.

—

Statutory fraction applied

— × 20%

The ATO applies a flat 20% statutory fraction to the car value. This has been 20% since 2014 (previously it was a sliding scale based on km). It represents the "deemed" private use of the vehicle.

—

Taxable value (gross-up Type 1)

— × 2.0802

The taxable value is grossed up to account for GST. Type 1 (2.0802) applies where the employer can claim GST input tax credits — standard for commercial vehicle leases. This inflates the FBT base to the pre-GST equivalent.

—

FBT payable (47% rate)

— × 47%

FBT is levied at 47% — matching the top marginal income tax rate. This is your employer's liability, but in a novated lease it is passed back to you as an employee contribution to reduce the taxable value to zero.

—

Your post-tax contribution (ECM)

To reduce FBT to zero, you make an Employee Contribution Method (ECM) payment from post-tax income equal to the statutory amount from Step 2. This eliminates the FBT liability entirely. You pay this from your after-tax pay — it shows up as the post-tax deduction on your payslip.

—

Your annual FBT obligation

—

True total cost — novated vs alternatives

Simplified comparison over the lease term · No deposits · 3-year loan term · For deposit/term-adjusted comparison, use the full calculator →

True total cost = all finance payments + stamp duty + running costs − vehicle exit value. Novated running costs are paid pre-tax (tax saving applied). Cash includes 5% p.a. opportunity cost.

Comparison assumptions: All alternatives use the same 3-year term · No deposit (deposit-adjusted comparisons available in the full calculator) · Running costs exclude the novated provider fee (loan/cash/dealer don't have this charge) · Personal loan at 8.99% · Dealer finance at 6.99% with 25% balloon.

Residual value and ATO statutory minimums

What you owe at the end of the lease — and your options

Your residual

—

— of vehicle price (ATO minimum for your km)

Estimated market value at end

—

— vs residual

ATO statutory residuals by annual km — 3-year lease

Residuals are scaled from the 36-month industry table by the ATO IT 28 minimum for your selected lease term (1yr 65.63% / 2yr 56.25% / 3yr 46.88% / 4yr 37.50% / 5yr 28.13%).

Annual km	Residual %	Residual amount	Monthly payment effect

At end of lease you can: Pay the residual and own the car outright · Refinance the residual into a new lease on the same or different car · Trade in — if market value exceeds the residual, you pocket the difference.

Run this scenario in another Veercal tool

All three calculators use the same FBT, tax and stamp duty rules — numbers will agree within rounding. They emphasise different things:

Full Calculator →

Compare novated against cash, personal loan, dealer finance, and finance lease — 6 analysis tabs, year-by-year breakdown, exit simulator.

Quick Compare →

Guided 5-step flow that strips out the dials and just shows you the side-by-side cost. Good for a quick decision.

Estimates only. All figures are indicative and based on the inputs you provided. FBT rates (47%), gross-up rate (2.0802), and ATO statutory residuals verified for FY2025–26. Tax calculations use ATO Stage 3 brackets effective 1 July 2024. Novated lease outcomes depend on your employer's specific arrangements, provider rates, and individual circumstances. This is general information only — not financial advice. Always consult a licensed financial adviser before making financial decisions. Full disclaimer →

Understand the numbers — free guides

How novated leases work

Full plain-English guide

EV FBT exemption explained

Who qualifies and how much you save

Full calculator

6 analysis tabs, exit simulator, deep dive

Frequently asked questions

Novated leases, FBT, and more