NOVATED LEASE
What Is a Novated Lease in Australia?
A novated lease is a salary-packaging arrangement that lets an eligible Australian employee finance and run a vehicle through their employer’s payroll.
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It involves three parties: you as the employee and driver, your employer, and the finance provider. You choose the vehicle and enter the finance agreement. Your employer then agrees to make the lease payments through payroll while you work for them. You remain responsible for the underlying finance contract.
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A novated lease can include the vehicle finance alone or a fully maintained package that also budgets for insurance, registration, servicing, tyres, fuel or eligible EV charging costs. Whether it is worthwhile depends on your salary, employer, vehicle, estimated kilometres, running costs, tax position, lease term and the residual value at the end.
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Asset Finance Partners helps Australian employees compare novated leasing, car loans and cash purchases using the same vehicle and realistic assumptions.
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How does a novated lease work?
A novated lease works by moving agreed vehicle costs into your payroll process.
First, you choose a vehicle. It may be a new or eligible used car, an electric vehicle, a hybrid, plug-in hybrid, petrol car, diesel vehicle, SUV, ute, hatchback or sedan. A finance provider then funds the purchase and sets the lease term and residual value.
Your employer signs a novation agreement. This means your employer makes the agreed payments from your salary for as long as you remain employed there. The finance agreement is still connected to you, which is why changing jobs needs to be considered before you sign.
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If you choose a fully maintained lease, the arrangement can budget for the cost of keeping the vehicle on the road. Rather than separately paying car insurance, registration, tyres, servicing and energy costs throughout the year, the expected costs are included in your salary-package deductions.
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What does a fully maintained novated lease include?
A fully maintained novated lease is designed to package both the finance and the recurring costs of driving.
The package can commonly include vehicle finance, comprehensive insurance, registration, CTP, scheduled servicing, maintenance, tyre replacement, roadside assistance and lease administration. Petrol and diesel budgets can be included for conventional vehicles. Eligible home and public charging costs can be included for electric vehicles, subject to the rules of the relevant employer and salary-packaging provider.
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The package is based on a budget, not a guarantee that every cost will be identical. If you drive more than expected, spend more on tyres, use more public fast charging or have a higher insurance renewal, the budget may need to be reviewed. If you spend less than budgeted, the treatment of the remaining balance depends on your employer and provider arrangement.
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Fines are your responsibility. Parking, tolls and home-charger installations do not always follow the same rules as normal vehicle operating costs, so these should be confirmed before the lease starts.
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How are novated lease payments taken from salary?
Novated lease deductions are generally taken from a combination of pre-tax and post-tax salary.
Pre-tax deductions reduce the income on which you pay income tax. Post-tax deductions are taken after tax. The correct structure depends on the vehicle and the Fringe Benefits Tax treatment.
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For a petrol car, diesel car, conventional hybrid or most plug-in hybrids, a post-tax employee contribution is commonly part of the arrangement. This helps manage the FBT outcome. A conventional novated lease should not be advertised as though every dollar is automatically paid before tax.
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For an eligible battery-electric vehicle, the tax treatment can be more favourable. The electric-car FBT exemption may apply to the vehicle and eligible associated expenses. This can reduce the need for a post-tax employee contribution and is a major reason many Australian employees are comparing EV novated leases.
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What is the EV FBT exemption?
The electric-car Fringe Benefits Tax exemption is an Australian tax concession for eligible electric vehicles provided through an employment arrangement, including a novated lease.
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In general, a vehicle may qualify where it is a battery-electric or hydrogen fuel-cell vehicle, was first held and used on or after 1 July 2022, meets the relevant value threshold when first held and used, and is provided under an eligible arrangement.
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The exemption is not automatic just because a car is electric. The exact model, value, delivery timing, first-use date, employer arrangement and tax law applying at the time must all be checked.
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The Australian Taxation Office confirms that eligible electric cars and associated car expenses can be exempt from FBT. You can read the current official guidance here: ATO electric cars exemption.
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An FBT-exempt EV benefit may still be reportable on your income statement. This can affect certain income-tested obligations or benefits, so you should obtain independent tax advice if that could apply to you.
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Are plug-in hybrid vehicles FBT exempt?
Generally, no for new novated lease arrangements.
From 1 April 2025, plug-in hybrid electric vehicles are generally no longer eligible for the electric-car FBT exemption unless a specific grandfathering arrangement applies. This distinction matters because a plug-in hybrid is not the same as a battery-electric vehicle.
A plug-in hybrid can still be financed through a novated lease. It may still suit drivers who want electric driving for shorter journeys and petrol backup for longer travel. However, its tax treatment needs to be modelled differently from an eligible battery EV.
Conventional hybrids are also not eligible for the EV FBT exemption. They can still be novated and can reduce fuel use, but they are treated differently for FBT purposes.
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Which vehicles can be put on a novated lease?
Most mainstream vehicle types can be considered for a novated lease, subject to employer participation and lender approval.
This includes new cars, eligible used cars, EVs, petrol and diesel vehicles, hybrids, plug-in hybrids, SUVs, utes, sedans and hatchbacks. Vehicle age, kilometres, valuation, condition and lender criteria are important for used vehicles. Older cars may have a shorter allowable finance term or may not meet the lender’s requirements.
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A vehicle can usually be sourced through a dealer and, in some cases, a private seller. The vehicle must be assessed before the arrangement is finalised.
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Can I novate a used car?
Yes, in many circumstances. A used car novated lease can make sense where a lower purchase price and shorter ownership horizon are more important than buying new.
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The decision should not be based on purchase price alone. A used vehicle may have higher maintenance risk, less remaining warranty, a different residual-value profile and more restrictive lender criteria. For a used EV, the FBT position must be checked against the individual vehicle rather than assumed from the model name.
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Asset Finance Partners compares the finance, expected maintenance, insurance, lease term, residual value and after-tax outcome before recommending a new or used option.
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What is the residual value on a novated lease?
The residual value is the amount that remains payable at the end of the lease. It is also commonly called a balloon payment.
The residual is set at the beginning of the agreement. It is not an unexpected extra charge; it is a core part of the finance structure. A lower regular payroll deduction can be associated with a higher residual at the end, which is why both figures need to be understood before you proceed.
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At the end of a novated lease, you may be able to pay the residual and keep the vehicle. You may be able to refinance it, sell the vehicle, trade it in, or start another novated lease. The available option depends on the agreement, the vehicle’s market value and any finance approval required.
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You do not automatically own the vehicle at the end of the term. Ownership depends on how the residual and any remaining obligations are resolved.
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How long is a novated lease?
Novated lease terms are commonly between two and five years.
A shorter term can mean higher regular deductions but a shorter period of commitment. A longer term can mean lower regular deductions, but it increases the importance of understanding the residual value, expected resale value, job plans and how long you want to keep the vehicle.
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The best term depends on the car, your budget, annual kilometres and lifestyle. A person who changes vehicles regularly may value a different structure to someone who wants to retain the vehicle after the lease ends.
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Is a novated lease better than a car loan?
A novated lease and a car loan solve different problems.
A car loan is generally paid from after-tax income. You manage registration, insurance, servicing, tyres, fuel and charging separately. There is no employer involvement.
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A novated lease is processed through payroll and can package the vehicle finance with running costs. For an eligible battery-electric vehicle, it may also access the EV FBT exemption, which is unavailable through a private car loan or cash purchase.
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A cash purchase avoids interest but uses your available savings. A car loan gives direct control without salary packaging. A novated lease can provide budgeting and tax advantages, but includes a residual value and requires employer participation.
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The right structure is personal. Asset Finance Partners can compare a novated lease, car loan and cash purchase on a like-for-like basis using your exact vehicle and assumptions.
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Is a novated lease worth it for an electric vehicle?
For many PAYG employees, an eligible battery-electric vehicle can be one of the strongest novated lease use cases.
The potential FBT exemption, combined with the ability to package charging and normal running costs, can make the after-tax cost materially different from funding the same vehicle with a standard car loan.
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It is still important to choose the right EV. The vehicle price, exact configuration, insurance premium, electricity tariff, charging access, kilometres and residual value all matter. A high-cost EV is not automatically better simply because it is eligible for an FBT exemption.
The most useful comparison considers your entire driving cost, not only a weekly repayment.
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How does charging work in an EV novated lease?
Eligible electric-vehicle charging costs can often be included in a fully maintained novated lease.
Home charging is commonly the simplest arrangement for drivers with off-street parking. The actual cost depends on your electricity tariff, charging pattern and household use. Public charging can be useful for apartment residents, long-distance travel or drivers without reliable home charging.
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A salary-packaging provider may require an approved method or records for home-charging reimbursement. Public charging is generally easier to identify through charging-account records. The ideal budget reflects how you will actually charge your vehicle, rather than assuming all charging is cheap home electricity or all charging is expensive DC fast charging.
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What happens if I change jobs during a novated lease?
Changing jobs does not remove your responsibility for the underlying finance contract.
Your new employer may be willing to take over the novation. If they are not, you may need to continue the payments privately, refinance the vehicle, sell it, trade it or pay out the agreement. The appropriate option will depend on your lease terms and financial position at the time.
A job change does not automatically mean you need to sell the car. However, your employment plans should be considered before entering any finance arrangement.
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Who is eligible for a novated lease?
Most PAYG employees can explore a novated lease if their employer participates, their income supports the repayments and they meet the finance provider’s credit criteria.
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Novated leases are commonly used by corporate employees, healthcare workers, teachers, government employees, professionals, executives and tradespeople employed by a company. The key issue is employer participation, not your job title.
If your employer does not currently offer novated leasing, Asset Finance Partners can help explain the process, payroll requirements and documentation. The employee remains responsible for the underlying finance agreement.
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How Asset Finance Partners compares novated lease options
Asset Finance Partners starts with the details that matter. We look at the vehicle you want, your approximate salary, your employer, expected annual kilometres, vehicle use, charging access, lease term and whether you want finance only or a fully maintained package.
We then assess the likely finance cost, running-cost budget, salary deductions, FBT treatment, GST treatment where applicable, residual value and end-of-lease options. We can compare that result with a standard car loan and cash purchase.
If the numbers do not stack up, we will tell you. The purpose of the process is to find the most commercially sensible vehicle-finance option for your situation.
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Australia-wide novated lease advice
Asset Finance Partners supports employees across Australia, including Sydney, Melbourne, Brisbane, Perth, Adelaide, Canberra, Hobart, Darwin and regional locations.
The novated lease process can be managed remotely with clear support for employees, employers and, where appropriate, accountants or financial advisers.
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Frequently asked questions about novated leases
Can I novate a car I already own?
In some cases, an existing vehicle can be refinanced into a novated lease. The vehicle’s age, condition, valuation, lender criteria and employer policy determine whether this is available.
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Can I choose my own dealer?
Usually, yes. Vehicles can commonly be sourced from dealerships and, in some cases, from private sellers, subject to lender requirements.
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What happens if my running-cost budget is too high or too low?
The budget can often be reviewed. The treatment of any surplus or shortfall depends on the employer and provider arrangement, so it should be clear before the lease begins.
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How do I get a novated lease quote?
Start with the vehicle you are considering, your approximate salary, employer name, expected annual kilometres and whether you want a fully maintained package. Asset Finance Partners can then prepare a tailored comparison.
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Explore EV novated lease brands
Choosing the right vehicle is as important as choosing the right lease structure. Compare Tesla novated leases, BYD novated leases, Kia novated leases, Chery novated leases, Geely novated leases and MG novated leases with Asset Finance Partners.
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Speak with a novated lease specialist
Asset Finance Partners can prepare a tailored comparison based on your vehicle, income, employer, driving habits and end-of-lease plan.
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Explore Australian novated lease and EV salary packaging options with Asset Finance Partners.​​​
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