A novated lease is not magic — it is a structure that lets you pay for a car with pre-tax dollars instead of post-tax dollars. At a 32.5% marginal rate, every $1.00 of pre-tax salary sacrifice costs you only 67.5 cents. That difference is the saving.
The three-way deal
Your employer leases the car from a finance company and pays the lease instalments from your gross salary before tax is calculated. Your employer then reduces your salary by the same amount (the “salary sacrifice”). You pay less income tax because your taxable income is lower. The leasing company holds the car on your behalf.
Crucially, because your employer is purchasing the car as a business asset, they claim the GST input tax credit — effectively removing the 10% GST from the purchase price. On a $50,000 car, that saves $4,545 straight away.
Why the EV exemption changes everything
Normally, providing a car to an employee attracts Fringe Benefits Tax (FBT) — currently 47% on the taxable value of the benefit. This would largely wipe out the salary sacrifice saving, which is why the Employee Contribution Method (ECM) exists for petrol cars: the employee makes a post-tax contribution to offset the FBT.
For eligible EVs and PHEVs under the LCT threshold, FBT is entirely exempt. No ECM needed. The full pre-tax sacrifice becomes a tax saving. On a $60,000 EV for someone earning $150,000, the saving over three years can exceed $15,000.
Running costs inside the package
A fully maintained novated lease bundles fuel or electricity, tyres, registration, insurance, and servicing into the same pre-tax package. Because the employer pays these on your behalf, they are also funded with pre-tax dollars — amplifying the overall saving. This calculator includes those costs in the pre-tax calculation.
Who benefits most
The higher your marginal tax rate, the bigger the saving. Someone on $120,000 (37% marginal) saves roughly twice as much per dollar sacrificed as someone on $45,000 (16% marginal). An FBT-exempt EV at $120,000 salary is the sweet spot: you combine a high marginal rate with zero FBT, delivering the maximum tax advantage.
Novated leases are available to any permanent employee whose employer participates. Most government departments, large ASX-listed companies, hospitals, and universities offer them. Smaller private employers may not — check with your HR team before assuming access.