Novated lease
Australia

What is a novated lease?

A novated lease is a salary sacrificing or salary packaging agreement between you, your employer and a novated lease provider. Here’s a quick rundown of how it works:

1. Your novated lease provider purchases your car and leases it to your employer, who then gives you access even if it’s only for private use
2. Your employer covers your lease obligations by deducting them from your pre-tax salary
3. Your payments are made until the end of your lease term (up to five years), at which point you can decide between several different options

The main reason why most people choose novated leases is what happens in step #2: pre-tax salary deductions. By taking the payment from your payslip before it’s sent to you, your taxable income is reduced, which in turn lowers the tax you’re required to pay. As an added bonus, you can also save on GST, as this can be claimed on the car purchase by your leasing company.

All novated leases come with a residual value or payment. This is a lump sum that’s intended to represent the value of your car at the conclusion of the lease. The Australian Taxation Office (ATO) has set minimum required residual values for each lease term length, which are as follows:

What are the different types of novated lease?

There are two types of novated lease on offer in Australia: fully maintained and non-maintained novated leases. Here’s how they differ from one another:

The main benefit of fully maintained leases is that the cost of all the included extras comes out of your pre-tax salary, rather than post-tax. This means they can save you more money, as well as have GST claimable on these costs. It also saves time, as you don’t have to organise them yourself or access your savings.

In contrast, non-maintained novated lease payments only include the cost of your vehicle and the fees and interest associated with your lease. This means you’re responsible for arranging all the servicing, car insurance and everything else that would’ve otherwise been included in your agreement.

When you take out your novated lease through Savvy, we offer customised solutions if you want to pick and choose what to include in your package. For example, we can offer a fully maintained novated lease without car insurance included.

What happens at the end of my lease?

Option 1: Sell, trade or upgrade

If you're coming up to the end of your novated lease term and want to refresh your wheels, you can sell your car to cover the residual payment and start a new agreement with a new vehicle.

Option 2: Sell the car and end the lease

Alternatively, you can simply sell your car and end the agreement. You'll have to pay any difference between the car's sale price and the residual value but if you sell the car for more you keep the profit.

Option 3: Refinance the residual

You can continue to take advantage of your novated lease's tax benefits by refinancing your residual. This extends your existing lease term by up to five years and allows you to keep your current vehicle.

Option 4: Own the car outright

Finally, you can choose to pay the residual yourself and take full ownership of the car. This ends your novated lease and the tax benefits that come along with it, but there's no longer any interest in your car from third parties.

Option 1: Sell, trade or upgrade

If you're coming up to the end of your novated lease term and want to refresh your wheels, you can sell your car to cover the residual payment and start a new agreement with a new vehicle.

Option 2: Sell the car and end the lease

Alternatively, you can simply sell your car and end the agreement. You'll have to pay any difference between the car's sale price and the residual value but if you sell the car for more you keep the profit.

Option 3: Refinance the residual

You can continue to take advantage of your novated lease's tax benefits by refinancing your residual. This extends your existing lease term by up to five years and allows you to keep your current vehicle.

Option 4: Own the car outright

Finally, you can choose to pay the residual yourself and take full ownership of the car. This ends your novated lease and the tax benefits that come along with it, but there's no longer any interest in your car from third parties.

What impacts the cost of my novated lease?

Beyond choosing between fully maintained (including what costs you want to incorporate into your payments) and non-maintained leases, there are plenty of things that have an effect on the cost of your novated lease. Some of these are:

• Interest: much like a car loan, interest is applied to your novated lease payments. It accounts for factors such as the amount borrowed, administrative expenses and the risk associated with leasing to the borrower.
• Finance and admin fees: these are charges associated with setting up and managing the lease.
• Choice of vehicle: the make, model and specifications of the car you choose will impact the overall cost.
• Post-tax contributions: most cars are subject to fringe benefits tax (FBT), which is required to be offset through post-tax contributions. However, electric vehicles are exempt from FBT, which can result in lower costs compared to traditional petrol or diesel cars.
• Driving distance: your annual mileage affects running costs, which can influence lease price or tax savings and the overall effectiveness of the lease.
• Car insurance: comprehensive car insurance is mandatory for novated leases. The cost of your car insurance policy can vary based on factors like your driving history, where you live and what car you drive.

In terms of car insurance for your novated lease, you can either include your own or opt for Savvy Fleet Insurance, which is specifically designed for novated leases (eligibility criteria apply).

Leasing a vehicle can provide substantial cost savings for both personal and business use. However, it’s important to understand all the potential costs involved. Since lease agreements and individual financial situations can vary greatly, it’s best to speak with an expert who can offer a tailored example based on your specific circumstances.

Novated lease tax benefits

One of the big advantages of novated leases is the tax benefits they offer. Here’s what you can expect from your novated lease:

• Income tax: as mentioned, because lease payments come out of your pre-tax income, the amount of income tax you’re liable to pay is reduced. This is despite the fact that you’re earning the same amount.
• GST on purchase: the GST on the purchase of the vehicle can be claimed by your leasing company, which can pass the savings of potentially thousands of dollars on to you. In 2025-26, the maximum credit claimable is $6,334.
• GST on running costs: it isn’t just the car purchase that you can avoid GST on. Insurance, registration, maintenance and fuel can all be GST-free, in addition to the ability to pay for them out of your pre-tax income (in the case of fully maintained novated leases).

Getting the best car loan deal

"Novated leasing is a tax-effective way to finance your vehicle while improving your personal cash flow. Whether your vehicle is new or pre-owned, used for business or personal travel, if you pay income tax, a novated lease could save you money and effort. Check online reviews for post-sale service and be sure to pick a company that values you for the life of your lease."

Adrian Taylor, General Manager, Novated Leasing

Adrian Taylor

General Manager, Novated Leasing

Savvy exclusive novated lease savings

Savvy currently has some exclusive discounts available on different vehicles if taken out through a novated lease. As of August 2025, Savvy Benefits is currently offering $3,000 off Tesla Model Y, 4% fleet discounts on select BYD models and $500 cashback on the INEOS Grenadier. 

Novated leases and fringe benefits tax (FBT)

One potential cost to consider when leasing your car is FBT. It’s a tax that applies to fringe benefits provided to employees by their business outside of their traditional salary. Novated leases are a common example of a fringe benefit, but they can also include health insurance and travel or accommodation allowances. 

While this tax is charged to employers, this is often passed on to the employee. As of the 2024-25 FBT year, this is charged at a rate of 47% on the taxable portion of the benefit (equivalent to 45% plus the 2% Medicare Levy).

However, by making post-tax contributions to your car’s running costs, FBT is reduced to $0, which is why businesses allow employees to access the benefits of novated leasing. Each of the costs listed under the fully maintained lease section (as well as new tyres) can be paid for out of your post-tax income to cut down on your FBT liability. You don’t need to worry, though: your novated leasing provider works all this out for you.

The amount you contribute post-tax can be calculated in one of the following two ways:

1. Statutory formula: a flat 20% rate on the cost of all car fringe benefits.
2. Operating costs: in cases where cars are used largely for business purposes, any private use is calculated as an overall percentage and applied to pre-tax expenses (inclusive of GST). A logbook is required to track business and private use.

The following is an example of how FBT may look if not using either method:

Here’s how the above example would look using the ECM:

What cars are exempt from FBT?

The list of vehicles that are exempt from FBT as of August 2025 is as follows:

All models and prices are sourced from CarsGuide and correct as of August 2025.

How to arrange a novated lease with Savvy

1. Find your car

   We can help you lock in your vehicle if you haven’t already.

2. Review your budget

   We'll set a tailored budget that your employer transfers to us each payroll.

3. Have your deductions set up

   Your payslip will now show both pre-tax and post-tax deductions.

4. Enjoy on-road costs being bundled into your payments

   Everyday car expenses, such as fuel, registration and insurance, are paid pre-tax.

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