Novated Lease Calculator
Novated lease vs paying for the same car after tax: GST saved, FBT under the statutory formula or the EV exemption, ECM and the change in take-home pay.
Saving per year vs paying after tax
$3,672.84On a $100,000 salary, a novated lease on a $50,000 car costing $18,000 a year in lease and running costs reduces take-home pay by $14,327 a year, $3,673 less than paying the same costs from after-tax pay, because $1,636 of GST is saved and post-tax contributions of $10,000 bring FBT to nil in 2026–27.
| Lease + running costs (GST inclusive) | $18,000 |
|---|---|
| GST saved (1/11th) | −$1,636.36 |
| FBT payable by employer | $0.00 |
| Post-tax contribution (ECM) | $10,000.00 |
| Pre-tax salary deduction | $6,363.64 |
| Take-home pay without lease | $77,480.00 |
| Take-home pay with lease | $63,152.84 |
| Annual cost through the lease | $14,327.16 |
| Same costs from after-tax pay | $18,000.00 |
| Saving per year | $3,672.84 |
How this was calculated
| Lease + running costs packaged: $12,000 + $6,000 | $18,000.00 |
|---|---|
| GST claimed by the employer (1/11th) and passed on | -$1,636.36 |
| Statutory taxable value: $50,000 × 20% × 365/365 | $10,000.00 |
| Post-tax employee contribution (ECM) offsetting the taxable value | $10,000.00 |
| FBT: $0 × 2.0802 × 47% | $0.00 |
| Pre-tax salary deduction | $6,363.64 |
| Take-home pay without the lease | $77,480.00 |
| Take-home pay with the lease (after pre-tax and post-tax deductions) | $63,152.84 |
| Annual cost of the car through the lease | $14,327.16 |
| Same costs paid from after-tax pay | $18,000.00 |
| Annual saving from packaging | $3,672.84 |
FBT year values: rate 47%, Type 1 gross-up 2.0802, statutory fraction 20%. Lease and running costs are as entered; the lease provider's fees and the residual (balloon) payment at the end of the lease are not included.
On a $100,000 salary, a novated lease on a $50,000 car costing $18,000 a year in lease and running costs reduces take-home pay by $14,327 a year, $3,673 less than paying the same costs from after-tax pay, because $1,636 of GST is saved and post-tax contributions of $10,000 bring FBT to nil in 2026–27.
Source: ATO Last verified How we keep this accurate
How a novated lease saves tax
A novated lease is a three-way agreement: you lease the car, your employer takes over the payments and deducts them from your salary, and the lease reverts to you if you leave. The saving comes from three places. First, the employer claims the GST on the lease and running costs, so you effectively pay for the car and its costs without GST. Second, the payments come out of pre-tax salary, so the amount is not taxed at your marginal rate. Third, the tax on the benefit (FBT) is either removed by making part of the payment from after-tax salary (the employee contribution method) or, for an eligible electric car, does not apply at all.
The FBT side
The ATO values the private use of a leased car with the statutory formula: 20% of the car’s base value each year, regardless of kilometres. On a $50,000 car that is $10,000. FBT on that is $10,000 × 2.0802 (the Type 1 gross-up, because the employer claimed GST) × 47% = $9,776.94, which the employer would pass on to you. Instead, under the employee contribution method you pay $10,000 of the lease from after-tax pay, which reduces the taxable value to nil, and only the balance comes from pre-tax pay. That is why nearly every novated lease is split into a pre-tax and a post-tax deduction.
Electric cars
Battery electric and hydrogen fuel-cell cars first held and used on or after 1 July 2022 and valued under the fuel-efficient luxury car tax threshold ($91,661 for 2026–27) at their first retail sale and any later sale are exempt from FBT, so the whole lease and all running costs come from pre-tax salary with no post-tax contribution. Plug-in hybrids lost the exemption for arrangements starting from 1 April 2025. The benefit is still a reportable fringe benefit, which can affect HELP repayments, Medicare levy surcharge and family payments.
Worked example
On a $100,000 salary with a $50,000 petrol car, $12,000 a year of lease payments and $6,000 of running costs: the employer claims $1,636 of GST; $10,000 is paid post-tax under ECM and $6,364 pre-tax. Take-home pay falls by $14,327 a year instead of the $18,000 the same costs would take from after-tax pay, a saving of $3,673. The same numbers for an eligible EV save more, because nothing is paid post-tax.
Frequently asked questions
Is a novated lease worth it?
It depends on the car, your marginal tax rate and how much you would spend on the car anyway. For a petrol car the saving is mainly the GST on the price and running costs plus the tax on the pre-tax portion; on a $100,000 salary and a $50,000 car that is around $3,700 a year in this calculator. For an eligible electric car the FBT exemption means every dollar comes from pre-tax pay, and the saving is typically two to three times larger. Set the saving against the lease provider’s interest rate and fees, which are often higher than a car loan.
How is FBT calculated on a novated lease?
Using the statutory formula: the car’s base value (its cost including GST and accessories) × 20% × the share of the FBT year it was available for private use. FBT is that taxable value × 2.0802 × 47%. Under the employee contribution method, after-tax contributions reduce the taxable value dollar for dollar, so contributing 20% of the base value from post-tax pay removes FBT entirely.
What is the employee contribution method (ECM)?
Paying part of the lease from after-tax salary so that the FBT taxable value falls to nil. Because the after-tax contribution equals the statutory value (20% of the car’s value), it is usually cheaper than paying 47% FBT on the grossed-up amount. Lease providers set the pre-tax and post-tax split automatically. It is not available for exempt electric cars, which need no post-tax contribution.
Are electric cars FBT exempt on a novated lease?
Yes, if the car is a battery electric or hydrogen fuel-cell vehicle, was first held and used on or after 1 July 2022, and its value was below the fuel-efficient luxury car tax threshold at its first retail sale and any later sale ($91,661 for cars first held in 2026–27). Plug-in hybrids are excluded for arrangements entered into from 1 April 2025. A phase-down of the exemption from 1 April 2027 has been announced but not legislated; existing leases would be unaffected. Home charging costs can be packaged too, using the ATO’s cents-per-kilometre shortcut.
Does a novated lease affect my HECS or HELP repayment?
It can. Salary packaging lowers your taxable income, but an exempt electric car still has a reportable fringe benefit amount (its notional taxable value grossed up at 1.8868), which is added back to work out HELP repayment income, so the compulsory repayment can be higher than the reduced salary suggests. For a petrol car where post-tax ECM contributions reduce the taxable value to nil there is generally no reportable amount. The calculator uses the reduced salary for HELP and does not add the reportable amount back.
What happens at the end of a novated lease?
You pay the residual value (balloon payment) set by the ATO’s minimum residuals, ranging from 65.63% of the price after one year to 28.13% after five, or refinance it into a new lease, or sell the car and keep any surplus over the residual. If you leave your employer the lease reverts to you and the payments are no longer pre-tax until a new employer takes it on.
Sources and assumptions
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