Novated Leasing Compared: vs Finance vs Buying Outright.
When getting a new car, you've usually got 3 options, Novated leasing vs financing vs buying outright.
Which saves you more? Compare the costs and find out why a novated lease is (usually) the smartest way to own a car, and why it's always the smartest way for EVs.
Novated Leasing Compared to a Loan and Buying Outright
The savings increase when the car is electric (as EV's are 'FBT Exempt', meaning 100% of the car costs are paid by your pre-tax dollars). If the car is not electric, only a portion of the car costs can be paid with pre-tax dollars.
Polestar 2
Assumptions:
Term: 5 year loan/lease/running costs
Salary: $120,000. Which means you would normally pay $562 in tax per week.
KM’s Driven/Year: 10,000km’s. Which means the Polestar 2 would cost you ~$93/week for running costs (Registration, Insurance, Charging, Maintenance & Repairs, etc)
Novated Lease Breakdown
Car Loan Breakdown
Buying Outright Breakdown
Mazda CX-5 Sport
Assumptions:
Term: 5 year loan/lease/running costs
Salary: $120,000. Which means you would normally pay $562 in tax per week.
KM’s Driven/Year: 10,000km’s. Which means the Mazda CX-5 Sport would cost you ~$108/week for running costs (Registration, Insurance, Fuel, Maintenance & Repairs, etc)
Novated Lease Breakdown
Car Loan Breakdown
Buying Outright Breakdown
How FBT Changes the Comparison
EV's squeeze even more value out of Novated Leasing, with 100% pre-tax payment.
FBT is a special tax applied to employees 'fringe benefits'. Fringe benefits are any forms of compensation, like novated leasing, that aren't directly salary/wages.
Fringe benefits tax is reduced when the employee has to pay post-tax to access their benefit, so with Novated leases, roughly 50% of the cost is paid pre-tax, and 50% is paid post-tax, to avoid FBT.
However, EV's are completely exempt from FBT, and you can pay for all of the finance and ongoing costs pre-tax.
An FBT Example:
EV's vs ICE Cars & Savings
However, the Polestar 2 would actually cost a little less than the Mazda CX-5 on a Novated Lease, because it can be paid entirely with pre-tax dollars.
Meaning you can get alot more car, or alot lower cost by choosing an EV with a novated lease.
Polestar 2
Salary: $120,000. Which means you would normally pay $562 in tax per week.
Tax Savings: As an EV, 100% of Finance and running costs ($368) are deducted from your pre-tax salary, this lowers your weekly tax by $107, and GST by $33.
Mazda CX-5 Sport
Salary: $120,000. Which means you would normally pay $562 in tax per week.
Tax Savings: As it is not an EV, only 50% of the total finance and running costs ($287) are deducted from pre-tax salary, and 50% are taken post-tax. This lowers your weekly tax by $46, and GST by $13.
How a Novated Lease Works:
Novated Leasing is a form of salary packaging, where your employer agrees to turn part of your pay in to a benefit, like a car.
Instead of paying for car expenses post-tax (like with a traditional loan), your employers pays for all of this with your pre-tax dollars, boosting your take-home pay by 10-30%, without changing your salary.
Without a Novated Lease:
With Clear Lease:
Which Cars are Eligible for a Novated Lease?
New, Used, or your Own.
One of the biggest advantages of novated leasing is flexibility. Whether you’re looking for a brand-new car, a quality used vehicle, or even want to salary package your existing car, there are options to cover anyones needs.
New Cars
With Clear Lease negotiating the purchase, many drivers get access to special Fleet discounts and full manufacturer warranties with this option.
The most commonly novated new cars are EV's, given that they are 100% pre-tax and offer the largest tax savings.
Used Cars
With used cars, the key requirement is that the vehicle meets age and financing criteria - typically, it shouldn’t be older than 12 years at the end of your lease term.
This option can be a smart way to access novated leasing benefits while really reducing the finance amount, by getting a vehicle at a steal of a price because it's already left the dealership.
Your Current Car
You can novate your existing vehicle by refinancing it under a novated lease structure. The equity you have in your car becomes a potential cash lump sum, and the refinanced amount and runnings costs start getting paid pre-tax.
This lets you get the benefits of salary packaging on your current car.
Frequently Asked Questions:
The Luxury Car Charge is a salary deduction used to offset the extra tax your employer pays when you lease a car above the ATO’s luxury car depreciation limit. It helps them recover the shortfall from reduced tax deductions.
Please note, this is completely separate from the Luxury Car Tax (LCT).
FBT is a tax (with a rate at 47%) applied to fringe benefits (incentives beyond salary/wages received from an employer). A non-electric car under a novated lease is a fringe benefit (electric cars are completely FBT exempt in Australia).
The employer is responsible for paying the FBT, but at Clear Lease - we use the employee contribution method (contributing post-tax funds) to offset any FBT to zero.
Our regular novated lease package (fully-maintained) usually includes your car lease repayments, fuel/charging, servicing, maintenance & repairs, registration, insurance, and tyres - all bundled into a single pre-tax deduction.
Yes, but it’s treated as a financial termination. You'll need to pay out the remaining lease value (and any fees), and you may lose some tax benefits. Talk to us to get a payout quote from your financier.
No, when your employer leases the car, they claim the GST credit, meaning you don’t pay GST on the purchase price. The same applies to most running costs. You will, however, pay GST if you buy the car at lease end.
Yes, if you’d like to keep the car, you simply pay the residual value set at the beginning of the lease. You can pay this from your personal funds, or refinance it separately. Once paid, the car is yours. You can also sell or trade it in and start a new lease.
Yes, if your new employer supports novated leasing, you can transfer your lease by signing a new agreement. If they don’t, you’ll need to make private repayments, refinance, or consider ending the lease.
Your lease doesn’t end if you change jobs. You can either transfer it to your new employer, pay privately until the lease ends, or choose to end the lease early.
Cars that are too old, unroadworthy, imported, heavily modified, or intended for commercial use typically don’t qualify for novated leasing. Motorcycles are also excluded under current ATO guidelines.
Luxury Car Tax (LCT) applies to vehicles that exceed the government’s set price thresholds. For the 2024–25 year, it’s $76,950 for standard vehicles and $89,332 for fuel-efficient ones. If your lease includes a car above these values, LCT may be added to your lease costs.
Please note: This is very different to the Luxury Car Charge (LCC).