What a novated lease does to your pay

What this works out, and what it deliberately will not

Almost every novated lease calculator online is run by someone who sells novated leases, and the number it shows you depends on figures only they hold: the interest built into the finance, the residual owing at the end, and how generous the running-cost budget is. There is no published schedule for any of that, so we do not estimate it and we never will.

What is published is the tax treatment, and it is the half most quotes gloss over. Put the annual cost you were quoted into the form and this applies the ATO’s own rules to it: whether FBT is payable, how much salary genuinely comes out before tax, what gets reported to the ATO afterwards, and what that reported figure does to a study loan. If the lease is poor value, the tax arithmetic will not rescue it — but at least you will be comparing quotes on the part that actually differs between them.

The exemption that made these popular

An eligible electric car attracts no FBT at all, which is why novated leasing went from a niche salary-packaging product to something half an office is asking about. The conditions are strict and every one of them has to hold:

• The car is a zero or low emissions vehicle: a battery electric vehicle or a hydrogen fuel cell electric vehicle.
• It is a car designed to carry a load under one tonne and fewer than 9 passengers, so motorcycles and scooters never qualify even if electric.
• The first time the car was both held and used is on or after 1 July 2022.
• It is used by a current employee or their associates.
• Luxury car tax has never been payable on the importation or sale of the car.

The price test is the one that catches people. It is measured against the luxury car tax threshold for fuel-efficient vehicles — $91,661 for 2026-27, not the $80,809 that applies to other cars — and it applies at the first retail sale and at every sale after it. A car that was over the line when new does not become eligible later by depreciating.

Two corrections worth making, because both circulate. There is no tiered threshold and no announced $75,000 tier. Eligibility turns on the fuel-efficient LCT threshold below, full stop. And a plug-in hybrid has not been eligible for a new arrangement since 1 April 2025.

If you are already in a plug-in hybrid lease, the exemption can survive — but the conditions are stricter than most people are told, and four ordinary events end it. The car had to be in use, or available for use, before 1 April 2025, with a financially binding commitment to keep providing it after that date. From then on, the exemption stops if any of these happen:

• An optional extension — the term has to be pre-determined when the commitment is entered into, so the exemption stops when the original term ends even if the option is taken
• A break in the novation, such as unpaid leave where the novation ends and the employee takes over the payments
• A change to the financial obligations under the lease, including the lease payments or the residual value
• A change of employer for FBT purposes, even within the same group of companies

Some changes that sound worse are fine. a change in a bundled service charge where the agreement already allows the amount to vary — adding roadside assist to such a charge does not create a new agreement; an insurance write-off replaced with a comparable vehicle noted on the existing contract, where pricing and the end date are unchanged; moving department or branch where the employer for FBT purposes is the same and the novation does not break. The distinction is whether the commitment itself changed, not whether the car did.

The calculator does not model the PHEV transition. Whether a given arrangement still qualifies turns on the wording of one specific contract and on events since, which no calculator can read. Source: ATO — FBT on plug-in hybrid electric vehicles (QC103132), last updated 14 March 2025.

Scheduled uncertainty: The government will complete a review of this exemption by mid-2027 to consider electric car take-up. That is the single largest scheduled uncertainty for anyone signing a multi-year lease now.

Exempt from FBT is not the same as invisible

Here is the part that is missing from nearly every explanation of this, and it costs people real money. An exempt electric car is still a reportable fringe benefit. The employer works out what the taxable value would have been, grosses it up, and puts that figure on your income statement.

You are not taxed on it. But a list of income tests read it as though it were income, and compulsory study loan repayments are one of them — repayment income is taxable income with reportable fringe benefits added straight back. So the arrangement lowers the income you pay tax on and raises the income your loan is assessed on, at the same time.

On the example this page opens with, a $60,000 car produces a notional value of $12,000, which is reported as $22,641.60 after the gross-up. Taxable income drops to $77,000; the income the study loan is worked out on climbs to $99,641.60. The repayment goes up $696.24, which is 12.1% of the entire tax saving handed back.

It is the same trap as salary sacrificing into super, with more leverage: the amount added back is the grossed-up figure, 1.8868 times the benefit, not the cash value.

Two structures, and why they behave so differently

For anything that is not an eligible electric car, the standard arrangement uses a post-tax contribution sized to bring the FBT taxable value to nil. No FBT is payable, and because the taxable value really is zero, nothing is reported either. The trade is that the money went out after tax rather than before it.

Read down that last column and the asymmetry is stark. The exempt electric car is the better deal on tax and the only one of the two that touches your study loan. Both facts are true at once, and a quote will usually mention the first.

Other arrangements exist — an employer can simply pay the FBT and recover it through the package — and we do not model those, because how the cost comes back to you varies by employer rather than by rule.

The statutory formula, in full

The taxable value of a car fringe benefit under the method almost every novated lease uses is (A x B x C / D) - E, where:

A car held for four full years at the start of an FBT year can have its base value reduced by one third. Not modelled here; it only applies to older cars, and a novated lease is normally newer. The operating cost method is available instead, but requires logbook and odometer records. Not modelled.

The FBT year runs 1 April to 31 March, which is not the income year. The amount reported for the FBT year ending 31 March 2027 is the one that appears on your 2026-27 income statement.

Where these rules come from

• ATO — Fringe benefits tax: rates and thresholds — ATO page last updated 2026-05-20.
• ATO — Taxable value of a car fringe benefit — ATO page last updated 2025-03-06.
• ATO — Electric cars exemption — ATO page last updated 2026-04-01.
• ATO — Luxury car tax rate and thresholds — ATO page last updated 2026-06-01.

Every rate and threshold here is read from a dated file that cites the ATO page it came from, and the arithmetic is pinned by automated tests. What is not here, deliberately, is any figure about the lease itself. If you want the other half of the picture — what the reported amount does to your loan over its whole life — the HECS repayment calculator takes a repayment income and runs it forward. The methodology page sets out what every calculator here models and what it does not.