How a novated lease actually works
Novated leasing is explained badly almost everywhere, usually by someone selling one. Here is the mechanism in six steps, with nothing hidden behind a quote.
- 1
You choose the car
You pick the vehicle — new, used or, in some cases, the one already in your driveway. A financier buys it and leases it to you. Because the financier is a business, it claims the GST back on the purchase, which is the first of the two savings.
- 2
Your employer takes on the payments
That is the novation: a deed under which your employer agrees to make the lease payments on your behalf while you work there. You still drive the car and you still bear the obligation if you leave — but for now the payments come out of payroll.
- 3
The payments come out of your salary before tax
This is the whole point. A pre-tax deduction reduces the income you are taxed on, so a dollar of car cost only really costs you a dollar less your marginal rate. At the 30% bracket plus the Medicare levy, that is about 68 cents. Running costs packaged the same way get the same treatment — and are bought GST-free.
- 4
FBT has to be dealt with
Giving an employee a car for private use is a fringe benefit. Under the statutory formula its taxable value is 20% of the car's GST-inclusive price every year, and FBT is charged at 47% on that once grossed up. Left alone it would swallow the saving whole — so it never is.
- 5
Either the car is exempt, or you contribute post-tax
A battery-electric vehicle priced at or under $91,661 is exempt from FBT outright, so the entire package stays pre-tax. For every other car, the employee contribution method applies: you pay an amount equal to the FBT taxable value out of POST-tax salary, which reduces the FBT to nil. Those dollars get no tax relief — that is the trade.
- 6
At the end of the term, the residual falls due
Every lease ends with an amount still owing — 28.13% of the financed amount on a five-year term, rising to 65.63% on a one-year term. You pay it and keep the car, refinance it into a new lease, or sell the car and cover any shortfall. It is not optional and it is not small.
The two questions worth asking a provider
- What is the interest rate? It is frequently absent from a quote. Without it you cannot tell how much of your “saving” is being handed back as finance margin.
- What exactly is the residual, and what happens if the car is worth less? The shortfall is yours, not the financier's.
If you already have a quote, our decoder answers the first one for you — the rate is recoverable from the figures on the page, even when it isn't printed. Start in the calculator and open it from there.
Where LeaseWiz's numbers come from
Every rate used on this site — tax brackets, the FBT rate and gross-ups, the statutory percentage, GST and luxury car tax thresholds, the ATO minimum residuals — is stored as dated reference data with a citation to its source, and reviewed on a schedule. The figures on this page are read from that data for FY2026-27, so a page cannot quietly go stale while the rules move on. See about and methodology.