Where the tax saving on a novated lease comes from
Not a headline marginal rate. The saving is the difference between two whole tax positions, which is the only way bracket crossings, the low income tax offset and the Medicare levy land where they really fall.
The saving on a novated lease is nearly always quoted as a marginal rate: package $13,535 a year and save your top rate on all of it. Sometimes that is exactly right. Often it is several percentage points out — and it is furthest out for the people with the most to lose by believing it.
Worked properly, on a $55,000 electric car over five years, on a $110,000 salary, with running costs packaged, it comes out like this. The explanation below is the same one the calculator shows against your own figures — it is running here on the example rather than being retold.
Measured, not assumed. We work out your whole tax position twice and take the difference — which is the only way bracket crossings, the low income tax offset, the Medicare levy shade-in and compulsory HELP repayments land where they actually fall.
This lease also puts a $20,755 reportable fringe benefit on your payment summary. It is not taxable income, but it counts towards income tests — so it is applied to the packaged side only when we measure the relief. Counting it on both sides would invent a saving nobody receives.
When the headline is right, and when it is not
On this example the relief works out at 32.0% of what is packaged, which is exactly what a headline would have told you. Nothing crosses a bracket here and there is no study loan in play, so the simple answer happens to be the right one.
That is the trouble with it. It is right often enough to be trusted, and wrong in precisely the situations where the number matters most. Change one thing at a time and the gap opens up.
| Situation | Headline says | Really | Out by |
|---|---|---|---|
| This example | 32% | 32.0% | spot on |
| A salary that crosses a bracket | 39% | 34.6% | 4.4 pts too high |
| This example, with a study loan | 32% | 24.0% | 8.0 pts too high |
The bracket case is the familiar one. Packaging removes a slice of income, and where that slice straddles a threshold the first dollars saved are worth more than the last, so the average across them lands below the top rate.
The study loan is the one nobody warns you about, and it runs the opposite way to intuition. Packaging lowers your taxable income, which ought to lower the repayment — but the car generates a reportable fringe benefit, and that is added back when repayment income is worked out. An exempt electric car still generates one. The repayment goes up, and it takes a piece of the saving before you ever see it.
None of that can be reasoned about from a rate. The only way to land it correctly is to compute the whole tax position twice — with the lease and without — and subtract, which is what produced every figure on this page.
And the saving is not the whole story
The same car in petrol pays fringe benefits tax, cancelled with $11,000 a year of salary that has already been taxed. Those dollars attract no relief at all, which is why the electric version of this example costs $4,631 a year less despite being the same price. The exemption, not the packaging, is doing most of that work.
On your salary, not this one
The relief rate moves with your income, your car and whether you have a study loan. The calculator works it out the same way — twice, and subtract.
Computed when the page is requested, from the same reference data the calculator uses. General information only, not financial or tax advice.