Fuel-Efficient Cars for Novated Leasing in Australia: Top Choices & Cost Benefits

Selecting a fuel-efficient car for novated leasing offers numerous cost benefits, especially in Australia, where fluctuating fuel prices impact overall expenses. This guide covers the benefits of fuel-efficient vehicles for novated leasing, top model recommendations, and essential financial considerations, helping you make an informed choice that aligns with your budget and lifestyle.

What is Novated Leasing?

Novated leasing is a financing option that enables employees to lease a vehicle with the support of their employer, often through salary sacrifice. In a novated lease, the employer deducts lease payments and running costs directly from the employee's pre-tax income, potentially lowering taxable income. 

At the end of the lease term, employees can own the car by paying the residual value, also known as the balloon payment, as defined by the Australian Tax Office (ATO) guidelines.

Novated leasing consolidates all car expenses—including fuel, insurance, and maintenance—into a single bundled payment, creating a streamlined approach to vehicle ownership. When combined with a fuel-efficient car, novated leasing allows for better budgeting and significant long-term savings, especially for those who commute regularly.

Benefits of Fuel-Efficient Cars for Novated Leasing

Opting for a fuel-efficient car within a novated lease brings multiple advantages:

• Lower Fuel Costs: Fuel-efficient vehicles consume less fuel per kilometre, translating into reduced pump costs. With fuel prices on the rise in Australia, this can result in substantial savings over the lease's life.

• Predictable Budgeting: Fuel-efficient cars offer consistent fuel economy, making forecasting expenses easier. This predictability is particularly beneficial in a novated lease structure, where all car costs are bundled into a single monthly payment.

• Ideal for Long-Distance Commuters: Fuel-efficient cars reduce frequent refuelling stops for employees with long commutes, helping keep overall travel expenses low throughout the lease period.

Cost Benefits of Fuel-Efficient Vehicles

Fuel-efficient cars provide unique cost benefits when paired with novated leasing, offering advantages beyond direct fuel savings. Here are some financial incentives for choosing a fuel-efficient vehicle:

• Reduced Maintenance and Operating Costs: Many fuel-efficient vehicles have simpler or more durable engine structures, especially hybrids and electric models like Plug-In Hybrid Electric Vehicles (PHEVs) and Battery Electric Vehicles (BEVs). This often leads to fewer mechanical issues and lower maintenance costs over time, helping you save on routine servicing.

• Maximised Salary Sacrifice Savings: Fuel-efficient cars fit well within the salary sacrifice arrangement offered by novated leasing. With lower operating costs, you can maximise the financial benefits, making it easier to stick to a predictable budget while reducing the overall monthly expense.

• Electric Car Discount and FBT Exemptions: Australia offers incentives for eligible fuel-efficient vehicles, such as electric car discounts and potential Fringe Benefits Tax (FBT) exemptions. While these benefits depend on vehicle type and specific eligibility, they can add further savings for those interested in hybrid or electric models.

• Eased Financial Obligations: Choosing a cost-efficient vehicle can free up funds for other financial responsibilities, such as a mortgage or personal finance goals. A fuel-efficient car in a novated lease can help make other financial commitments more manageable by lowering fuel costs.

• Protection Against Fuel Price Increases: As fuel prices fluctuate and are expected to continue rising, a fuel-efficient car safeguards against these costs. This stability is especially valuable for novated leasing, as it allows for long-term affordability and budget planning.

Types of Fuel-Efficient Vehicles for Novated Leasing

Fuel-efficient options for novated leasing include various types of advanced technology vehicles. Each type offers unique benefits, making finding a model that fits your specific needs and preferences easier.

Hybrid Vehicles

Hybrid vehicles combine a conventional petrol engine with an electric motor, offering fuel savings without a charging station. Examples include the Toyota Corolla Hybrid and Toyota RAV4 Hybrid, which provide substantial fuel efficiency for daily commuting and longer trips.

Plug-In Hybrid Electric Vehicles (PHEVs)

PHEVs blend electric and petrol power, allowing for limited electric-only driving before switching to petrol. Models like the Mitsubishi Outlander PHEV provide flexibility, enabling electric driving for short trips while relying on petrol for longer distances. PHEVs are ideal for those who want an electric experience but need a petrol backup.

Battery Electric Vehicles (BEVs)

BEVs are fully electric and do not consume any petrol, making them highly efficient and economical in fuel costs. The MG ZS EV and Tesla Model 3 are popular BEV choices in Australia, each offering impressive range and zero emissions. While charging infrastructure is a consideration, BEVs are highly cost-effective for urban drivers with access to charging facilities.

Hydrogen Fuel Cell Electric Vehicles (FCEVs)

FCEVs are an emerging option in Australia, operating on hydrogen to produce zero emissions. Although infrastructure is currently limited, FCEVs like the Toyota Mirai showcase the potential for hydrogen as a long-range, quick-refueling fuel alternative. While still limited in availability, they represent a promising future for fuel-efficient novated leasing.

Top Fuel-Efficient Cars Available for Novated Leasing in Australia

In Australia, many choices exist across hybrids, PHEVs, BEVs, and even FCEVs. Here's a selection of popular fuel-efficient models suited to novated leasing:

Toyota Corolla Hybrid

• Fuel Economy: Approximately 4.2L/100km

• Overview: Known for its reliability and impressive fuel economy, the Toyota Corolla Hybrid is a compact sedan with an excellent balance of performance and efficiency, ideal for city and longer drives.

Hyundai Ioniq Hybrid

• Fuel Economy: Around 3.9L/100km

• Overview: With a spacious interior and user-friendly tech, the Hyundai Ioniq Hybrid is a practical and economical option for regular commuters.

Kia Niro Hybrid

• Fuel Economy: Approximately 4.4L/100km

• Overview: The Kia Niro Hybrid combines the space of an SUV with the efficiency of a hybrid, making it a versatile and cost-effective choice for families.

Mazda3

• Fuel Economy: About 6.0L/100km

• Overview: The Mazda3 is a sporty, stylish choice with competitive fuel economy, making it ideal for those wanting efficiency without sacrificing design or comfort.

Toyota RAV4 Hybrid

• Fuel Economy: Around 4.8L/100km

• Overview: This midsize SUV combines fuel efficiency with roominess, making it ideal for families or active individuals needing extra space.

Mitsubishi Outlander PHEV

• Fuel Economy: Approximately 1.9L/100km (electric and petrol combined)

• Overview: The Mitsubishi Outlander PHEV is great for short electric trips with a petrol backup, perfect for those seeking a flexible, eco-friendly vehicle.

Honda Civic

• Fuel Economy: Around 6.0L/100km

• Overview: Known for its balanced performance and efficiency, the Honda Civic is a solid choice for novated leases, especially for long-term reliability.

MG ZS EV (Battery Electric Vehicle)

• Fuel Economy: Fully electric with an estimated range of 263km per charge

• Overview: The MG ZS EV offers a zero-emission, electric-only experience with affordable pricing for those seeking to eliminate fuel costs.

Eligibility for Fuel-Efficient Used Cars under Novated Leasing

Novated leasing is flexible, allowing for new and used cars, provided they meet certain requirements. Used cars must be less than 15 years old at the end of the lease term. This rule is advantageous for fuel-efficient models, as it broadens the choice to include pre-owned hybrids, PHEVs, and BEVs, which are often treated the same by lenders as new cars, provided they meet the age requirement.

Important Considerations for Novated Leasing a Fuel-Efficient Car

When selecting a fuel-efficient car under a novated lease, it's essential to be aware of specific considerations:

1. Luxury Car Tax (LCT) Threshold

• The Luxury Car Tax threshold recently increased to $91,387, impacting higher-end fuel-efficient models. Vehicles priced above this limit incur additional tax, which can be relevant for novated leases on premium electric models or hybrids.

2. Residual Value Obligations

• At the end of a novated lease, you'll need to pay the residual value, or balloon payment, to own the car outright. This residual is calculated based on ATO guidelines and depends on the car's age and lease term. It's crucial to factor this into your budget when planning a novated lease.

3. Restrictions on Advance Payments

• Novated leases do not permit advance payments; payments are deducted from your pre-tax salary monthly over the lease term. Understanding this can help you plan your budget more accurately throughout the leasing period.

4. Employer Non-Involvement in Paperwork

• Employers facilitate the pre-tax salary deduction in novated leasing but do not manage paperwork. The employee or leasing provider handles car registration, insurance, and documentation.

5. Ride-Sharing and Sole Trader Restrictions

• Novated leases are designated for private use only, excluding them from ride-sharing services like Uber. Additionally, novated leasing is unavailable to sole traders, as an employer is required to handle salary deductions.

Why Fuel Efficiency is Beneficial in Novated Leasing

Fuel-efficient cars offer multiple benefits in the context of novated leasing, providing financial and practical advantages that align well with long-term leasing arrangements:

• Lower Running Costs: A fuel-efficient car consumes less fuel and requires fewer refuelling stops, which translates into lower overall monthly expenses.

• Budget Stability: Fuel-efficient cars are less impacted by fluctuations in fuel prices, offering more predictable costs over time—a significant advantage in a structured novated lease.

• Long-Term Suitability: A novated lease requires a residual payment to retain ownership at the lease's end. Opting for a fuel-efficient vehicle ensures that long-term maintenance and operating costs remain manageable even after the lease period concludes.

Conclusion

Choosing a fuel-efficient car for your novated lease maximises savings and helps maintain a balanced budget over time. Australia's diverse market offers hybrids, PHEVs, BEVs, and even hydrogen fuel cell models to suit various preferences and needs. You can find a car that aligns with your financial and lifestyle goals by carefully evaluating your options, ensuring a smoother and more cost-effective leasing experience.

If you're ready to explore novated leasing options on a fuel-efficient car, reach out to Novated Finance Australia. Our team of novated leasing specialists is dedicated to helping Australian employees find the right vehicle to fit their budget and lifestyle. 

Frequently Asked Questions

• Are there any restrictions on the types of cars eligible for novated leasing?

  Yes, novated leasing typically covers both new and used cars, but used vehicles must be under 15 years old at the end of the lease term. This allows a variety of fuel-efficient vehicles, including hybrids and electric cars, to be eligible for lease.

• How does novated leasing a fuel-efficient car impact my personal finances?

  Novated leasing allows you to bundle car expenses into a single payment deducted from your pre-tax salary, potentially reducing taxable income. Choosing a fuel-efficient car can further reduce fuel and maintenance costs, freeing up funds for other personal finance goals.

• Can I upgrade to a newer model during my novated lease term?

  Novated leases typically require a set term commitment. However, some providers may offer options to change vehicles mid-term, although this could involve additional fees. Before committing, it's best to check with your leasing provider about upgrade options.

• Are electric vehicle (EV) charging costs covered in novated leasing?

  While standard novated leasing typically covers fuel costs, EV charging costs may vary depending on the provider. It's advisable to discuss with your novated leasing specialist to confirm whether home and public EV charging expenses are included in your specific lease plan.

• Can I transfer my novated lease to a new employer if I change jobs?

  Some novated leases may be transferable, but this depends on the terms of your leasing agreement and the willingness of your new employer to facilitate the salary deductions. If you anticipate a job change, check with your leasing provider to see if a transfer is possible.