Novated Lease Calculator

How this calculator works

This calculator compares three ways to acquire a car in Australia, using 2025-26 financial year tax rates. It accounts for your marginal tax rate, the car's purchase price, running costs, and whether the car is an EV, hybrid, or petrol/diesel vehicle — all of which affect the FBT and tax treatment of a novated lease.

1. Buy outright (cash)

You pay the full purchase price from savings. There are no interest costs, but there is an opportunity cost: the money could have been used to pay down your home loan or invested. This calculator uses your home loan interest rate to estimate the foregone return. Running costs are paid from post-tax income.

2. Car loan

You finance the car with a personal or car loan at the input interest rate. Monthly repayments are calculated using the standard amortisation formula. Running costs are paid from post-tax income. There are no tax benefits with a car loan.

3. Novated lease

Lease payments and running costs are deducted from your pre-tax salary (salary packaging). For electric vehicles below the luxury car tax (LCT) threshold of $91,387, FBT is fully exempt under the Electric Car Discount Scheme — making EVs especially attractive on a novated lease. For hybrids and petrol/diesel cars, FBT applies at 20% of the car's value per year (statutory fraction method); the Employee Contribution Method (ECM) lets you offset this with a post-tax contribution. An ATO minimum residual value applies at the end of the lease term.

Tax rates used (2025-26 FY)

• $0 – $18,200: 0%
• $18,201 – $45,000: 16%
• $45,001 – $135,000: 30%
• $135,001 – $190,000: 37%
• $190,001+: 45%

Medicare Levy of 2% is applied to taxable income above the threshold. Tax savings on a novated lease are calculated by comparing the actual income tax and Medicare Levy before and after salary sacrifice — this accounts for bracket crossings accurately.

Frequently Asked Questions

What is a novated lease and how does it work in Australia?

A novated lease is a three-way agreement between you, your employer, and a finance company. Your employer deducts lease payments and running costs from your pre-tax salary (salary packaging). This reduces your taxable income, lowering the tax you pay. At the end of the lease you can pay the residual to keep the car, upgrade to a new car, or return it.

Are electric vehicles exempt from FBT on a novated lease?

Yes. Under the Electric Car Discount Scheme, eligible electric vehicles (plug-in EVs) first held on or after 1 July 2022 and below the luxury car tax (LCT) threshold of $91,387 are exempt from fringe benefits tax (FBT) on a novated lease. This makes EVs particularly attractive for salary packaging. Hybrid vehicles and petrol/diesel cars are not exempt and FBT applies.

Is a novated lease worth it for low-income earners?

The benefit of a novated lease depends on your marginal tax rate. Higher-income earners benefit more because the pre-tax deductions save more tax. If you are in the 16% or 0% bracket, the tax savings are modest and the lease fees and FBT may outweigh the benefits. Use this calculator with your actual income to see whether a novated lease saves you money.

What is the Employee Contribution Method (ECM)?

The Employee Contribution Method (ECM) lets you reduce the fringe benefits tax (FBT) on a novated lease by making a post-tax contribution from your take-home pay. Under the statutory fraction method, FBT is 20% of the car's value per year. By contributing this amount from post-tax dollars, you reduce the FBT to zero. This is commonly used for non-EV vehicles to make the lease more tax-effective.

How does a novated lease compare to a car loan?

A car loan is financed with post-tax dollars — you pay interest but get no tax benefit on the car or running costs. A novated lease uses pre-tax dollars for both the finance and running costs, which can save tax, especially for higher-income earners and EVs (which are FBT-exempt). However, novated leases include fees, residuals, and (for non-EVs) FBT. This calculator compares all three options — cash, car loan, and novated lease — side by side.