Is a novated lease worth it in 2026?

For electric vehicles under the Luxury Car Tax threshold for fuel-efficient vehicles, which the ATO indexes every 1 July — check the current figure before you commit, a novated lease is almost always worth it — the FBT exemption means the entire lease including electricity, rego, insurance and servicing is paid from pre-tax salary, typically saving $4,000–$10,000 per year. For petrol/diesel cars, savings are more modest (usually $1,500–$3,500/yr) because the Employee Contribution Method is required to eliminate FBT. It's most attractive if you earn above $45,000 (so you're in the 32% marginal bracket or higher) and drive a significant number of kilometres per year.

How does FBT work on a novated lease?

Fringe Benefits Tax applies to cars provided through salary packaging. Under the statutory method, the FBT taxable value is 20% of the car's GST-inclusive list price, regardless of kilometres. To avoid paying FBT at 47%, most non-EV novated leases use the Employee Contribution Method (ECM): the employee pays a portion from post-tax income equal to the FBT taxable value, reducing the FBT liability to zero. The remaining lease cost is paid from pre-tax salary, delivering the tax saving.

What happens at the end of a novated lease?

At lease end you must pay the residual (balloon) value — the ATO minimum is 28.13% for a 5-year lease, 37.50% for 4 years, 46.88% for 3 years, 56.25% for 2 years, and 65.63% for 1 year. You have three options: (1) pay the residual out and keep the car, (2) refinance the residual into a new lease on the same car, or (3) trade the car in and roll into a new novated lease. The residual is NOT transferred to you automatically — you must actively deal with it.

Can you novate an electric vehicle (EV)?

Yes, and EVs receive an extraordinary tax benefit. Since 1 July 2022, battery electric vehicles, plug-in hybrids (until 1 April 2025 for new PHEV leases — existing PHEV leases continue to qualify) and hydrogen fuel-cell vehicles priced under the Luxury Car Tax fuel-efficient threshold at the time of first retail sale are fully exempt from FBT. That threshold is indexed every 1 July and the definition of a fuel-efficient vehicle tightened from 1 July 2025, so check the ATO figure and the vehicle's fuel consumption rating for the year you are buying in. The exemption applies when the vehicle is provided through a novated lease. This means the entire lease cost — including electricity, rego, insurance, tyres, servicing, and the finance component — is paid from pre-tax salary with zero FBT payable. This is the single biggest personal tax break in Australia for car buyers.

What happens to my novated lease if I leave my job?

When you leave your employer, the novation agreement ends and the lease becomes your personal responsibility. You have three options: (1) ask your new employer to novate the lease (most employers will agree if they offer salary packaging), (2) pay out the lease in full, or (3) continue making payments from after-tax income, losing the tax benefit. You remain liable for the car regardless. This is an important risk to weigh before committing to a multi-year lease, especially if your job is not secure.

Novated Lease Calculator Australia 2026-27

Estimate your tax savings, running costs, and net weekly cost on a novated lease — including the full FBT exemption for electric vehicles under the Luxury Car Tax threshold. Uses ATO minimum residual values and 2026-27 tax brackets.

Last verified: 2 August 2026

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General information and estimates only — not legal, financial or tax advice. Always check your specific award, agreement or contract, or a qualified professional, before you rely on the result.

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