Australian Novated Lease Calculator

Fringe Benefits Tax (FBT) is a tax paid by employers on non-cash benefits provided to employees. When an employer provides a car through a novated lease, the ATO treats this as a car fringe benefit — the employee receives the use of a vehicle as part of their remuneration.

FBT is calculated at 47% for FBT 2026–27 (the same rate applies across FBT years ending 31 March 2023 through 31 March 2027) on the taxable value of the benefit, using the statutory formula: 20% of the vehicle's base value per year.

FBT is the employer's liability — but in practice it is recovered from the employee via the Employee Contribution Method (ECM), where the employee makes a post-tax contribution equal to the taxable value, reducing FBT to zero.

The Employee Contribution Method (ECM) is the most common way to eliminate Fringe Benefits Tax on a novated lease.

Under the statutory formula, the FBT taxable value is 20% of the vehicle's base value. The employee makes a post-tax contribution each year equal to the FBT taxable value, which reduces the residual taxable value to nil — eliminating FBT.

Example: on a AUD 60,000 vehicle, ECM = AUD 60,000 × 20% = AUD 12,000 per year post-tax. The ECM is the post-tax portion of the same salary package — not an additional charge on top. On a total annual package of AUD 18,928 (lease AUD 11,428 + running AUD 7,500) with an AUD 12,000 ECM, the split is AUD 6,928 pre-tax + AUD 12,000 post-tax (ECM).

A flat 20% statutory fraction applies to all car fringe benefits from 1 April 2014 (announced 10 May 2011). This replaced an earlier four-tier system based on annual kilometres.

The FBT taxable value is: base value × 20%. The base value is the vehicle's purchase price including GST, excluding registration and stamp duty.

The FBT payable by the employer uses the Type 1 gross-up factor of 2.0802 (where the employer is entitled to GST credits):
FBT payable = taxable value × 2.0802 × 47%

For a AUD 60,000 vehicle: taxable value = AUD 12,000, grossed-up = AUD 24,962, FBT ≈ AUD 11,732 per year. This is eliminated entirely by an AUD 12,000 ECM post-tax contribution.

Yes — the employer is required to report the grossed-up taxable value of the car fringe benefit on the income statement (previously payment summary) each FBT year, where the unadjusted notional taxable value exceeds the AUD 2,000 threshold.

This reportable fringe benefits amount (RFBA) is included in "total income" for certain government purposes, including HECS/HELP repayment assessments, Medicare Levy Surcharge thresholds, child support calculations, and income-tested benefits like Family Tax Benefit.

However, it does not increase income tax liability directly — it is not included in taxable income for tax calculation purposes. Where the ECM eliminates FBT to nil, the RFBA may be reduced; for EV-exempt vehicles, an RFBA is still reportable based on the notional taxable value.

Yes — since 1 July 2022, battery electric vehicles (BEVs) and hydrogen fuel cell vehicles provided through a novated lease are fully exempt from FBT, provided the car has never been subject to Luxury Car Tax. The vehicle's value must have been below the fuel-efficient LCT threshold at first retail sale and at any subsequent sale (the "value" excludes registration and stamp duty). The fuel-efficient threshold is AUD 91,661 for 2026–27 (from 1 July 2026).

When the exemption applies, no ECM post-tax contribution is required — the entire salary sacrifice is pre-tax, maximising the income tax saving.

Per the ATO, the exemption applies for each FBT year the vehicle is provided under a valid novated lease arrangement.

No — PHEVs lost their FBT exemption from 1 April 2025. Plug-in hybrid vehicles had been exempt since 1 July 2022, but the legislation removed the exemption from that date.

The only exception: if a binding contract was in place before 1 April 2025 for a PHEV novated lease, the exemption continues to apply for the duration of that original lease agreement only — it cannot be renewed or extended under the exemption.

New PHEV novated leases entered after 1 April 2025 are subject to the standard FBT and ECM rules.

The Luxury Car Tax (LCT) threshold for fuel-efficient vehicles (including battery EVs and hydrogen fuel cell vehicles) in 2026–27 is AUD 91,661 (from 1 July 2026; the 2025–26 threshold was AUD 91,387).

For a BEV to qualify for the FBT exemption on a novated lease, the vehicle's value must have been below the fuel-efficient LCT threshold at first retail sale and at any subsequent sale — i.e. the car has never been subject to LCT. The value used for this test excludes registration and stamp duty.

This is a different concept from today's drive-away price: a used EV under today's threshold is not automatically exempt if it was above the threshold at first sale or has been subject to LCT at any time.

Standard vehicle operating costs can be bundled into the salary sacrifice package, increasing the pre-tax portion of total vehicle spend. According to the ATO, these are all treated as car expenses deductible from the package:

• Fuel (or electricity charging for EVs)
• Comprehensive insurance
• Registration and CTP
• Scheduled servicing and maintenance
• Tyres
• Roadside assistance (sometimes included)

Where the employer is entitled to GST input tax credits on individual items, those credits are typically reflected in the lease provider's budget. Registration components such as CTP and government fees are generally GST-free. Running costs are estimated upfront based on expected annual usage; any surplus or shortfall is reconciled at end of the FBT year.

The saving depends on salary, vehicle price, and whether it is an EV. As an illustration using the ATO 2025–26 Stage 3 tax rates:

On a AUD 60,000 BEV (FBT exempt) with a AUD 100,000 salary over 5 years — income tax saving approximately AUD 6,057 per year (AUD 30,285 over 5 years), plus a one-off GST credit on purchase of approximately AUD 5,455 = approximately AUD 35,740 total over 5 years.

On the same vehicle as an ICE (non-EV), the income tax saving applies only to the pre-tax portion of the package (≈ AUD 2,217/yr), giving a smaller headline saving — though typically still positive at marginal rates of 30% or higher. See the calculator above for estimates based on individual inputs.

When the employer purchases a vehicle for a novated lease, the employer can claim the GST (1/11th of the GST-inclusive price) as an input tax credit — this is passed to the employee, effectively reducing the vehicle's cost.

The GST credit is capped at 1/11 of the income tax car limit: AUD 69,883 for 2026–27 (from 1 July 2026), giving a maximum GST credit of AUD 6,353 (the 2025–26 car limit was AUD 69,674 / AUD 6,334).

For a AUD 60,000 vehicle (below the cap), the GST credit is AUD 60,000 ÷ 11 = approximately AUD 5,455. For a AUD 91,661 EV (above the cap), the credit is capped at AUD 6,353 — the additional GST above the cap is not recoverable. The GST credit is unavailable to a private car loan buyer.

The benefit of a novated lease diminishes at lower income levels because the pre-tax saving scales with the marginal tax rate.

At a AUD 50,000 gross salary (30% marginal rate on the portion above 45,000), the income tax saving on a AUD 6,928 pre-tax sacrifice is approximately AUD 1,950 per year. For a non-EV vehicle, the AUD 12,000 ECM post-tax contribution reduces take-home pay substantially, and the net result may be limited or negative. For EVs (no ECM), the saving is more straightforward at any salary level.

Additionally, reduced reported income can lower income-tested government benefits, HECS/HELP repayments, and Family Tax Benefit assessments. The net effect depends on individual circumstances.

If the employee leaves the current employer mid-lease, three things can happen:

• Transfer to a new employer — if the new employer participates in salary packaging, the novation deed can be transferred so the lease and pre-tax deductions continue with minimal disruption.
• Take over the lease personally — pay the remaining lease repayments from after-tax income until end of term (losing the tax benefit but avoiding break costs).
• Terminate the lease early — this usually triggers an early termination fee, plus any shortfall between the car's current market value and the outstanding lease balance.

The lease contract's termination clauses set out what applies when changing employers.

The ATO sets minimum residual values — the lowest permitted balloon payment at the end of each lease term. Setting the residual below the ATO minimum would classify the arrangement as a deemed purchase.

Per ATO TD 93/142, the minimum residual percentages of the vehicle's base value are:

• 1 year: 65.63%
• 2 years: 56.25%
• 3 years: 46.88%
• 4 years: 37.50%
• 5 years: 28.13%

For a AUD 60,000 vehicle on a 5-year lease, the minimum residual is AUD 16,878. At lease end the residual can be paid to own the car, traded into a new lease, or refinanced.

Yes — a novated lease can be used to acquire a used vehicle as well as a new one, provided the vehicle meets the ATO's definition of a car and the employer's salary packaging guidelines. The same FBT and ECM rules apply.

For a used vehicle, the base value for FBT purposes is the market value at the time of the arrangement — not the original purchase price.

A used EV is eligible for the FBT exemption only if it was never subject to LCT — the vehicle's value must have been below the fuel-efficient LCT threshold at first retail sale and at any subsequent sale (the "value" excludes registration and stamp duty). Today's sale price being below the threshold is not by itself sufficient if the car was previously above it. Used vehicle finance rates through novated lease providers can be higher than for new vehicles.

A novated lease reduces reported taxable income, which most mortgage lenders use as the basis for serviceability assessments. For example, on a gross salary of AUD 100,000 with a pre-tax sacrifice of AUD 6,928, the salary reported on the income statement drops to AUD 93,072; from 2026–27 taxable income is a further AUD 1,000 lower after the ATO's standard deduction for work-related expenses, which applies with or without the lease.

The Reportable Fringe Benefits Amount (RFBA) is also reported on the income statement and feeds into Medicare Levy Surcharge thresholds and some income-tested calculations, even though it is not in taxable income for tax purposes.

Lenders differ in how they treat novated lease salary sacrifice when assessing a home loan application — some add salary packaged amounts back, others do not. The lease repayment is typically counted as a commitment in serviceability calculations. Lender treatment details should be confirmed individually before relying on borrowing capacity assumptions.

At the end of the lease term, there are three main options:

• Buy the vehicle — pay the ATO minimum residual value (the balloon payment) to take full ownership. Then keep, sell privately, or trade in the car.
• Re-lease a new vehicle — return the car and start a fresh novated lease on a new vehicle, restarting the cycle of pre-tax savings. This is common for those who prefer driving a new car every few years.
• Refinance the residual — rather than paying the residual outright, finance it with a separate car loan or personal loan to keep the car.

The lease provider typically contacts the employee before end of term to confirm the chosen option. The timing varies by provider; check the lease contract for specific notice requirements.