How Much Will I Save on a Novated Lease?
If you’re considering a novated lease, one of the biggest questions is: How much will I really save? The answer is quite a bit, especially compared to traditional vehicle financing or outright purchase. This is largely thanks to tax benefits and clever salary packaging.
Let’s break down exactly how a novated lease can boost your take-home pay, explore sample savings by salary brackets, and compare leasing versus buying to help you make an informed decision.
How Does a Novated Lease Save You Money?
Besides the obvious tax benefits, novated leasing offers several other financial advantages that can further boost your savings.
1. Reduce Your Taxable Income
The core saving mechanism of a novated lease is its ability to use pre-tax income to pay for your car expenses. Normally, you pay income tax on your entire salary. But with salary packaging through a novated lease, lease payments, and often running costs, come out before tax, reducing your taxable income.
For example:
If you earn $80,000 annually and your lease payments total $10,000 per year, your taxable income is effectively reduced to $70,000.
With a marginal tax rate of 32.5%, you save about $3,250 in tax each year.
That’s immediate cash back in your pocket, boosting your take-home pay.
2. Manage Fringe Benefits Tax (FBT)
Novated leases do attract Fringe Benefits Tax, but employers often use the Employee Contribution Method (ECM). This method requires you to make a portion of your lease payments from post-tax income, which reduces the FBT payable.
For higher income earners, this approach means more tax savings and less FBT impact, maximising your overall financial benefit.
Sample Savings Based on Salary and Lease Cost
Here’s a detailed look at how much you could save depending on your income and lease payments:
| Salary (AUD) | Annual Lease Cost | Taxable Income After Lease | Estimated Annual Tax Savings | Estimated 5-Year Savings |
|---|---|---|---|---|
| $80,000 | $10,000 | $70,000 | $3,250 | $16,250 |
| $100,000 | $15,000 | $85,000 | $5,000 | $25,000 |
| $150,000 | $20,000 | $130,000 | $6,600 | $33,000 |
| $200,000 | $25,000 | $175,000 | $8,750 | $43,750 |
Note: Exact savings depend on your personal tax bracket, lease terms, and running costs.
Beyond Tax: Additional Savings You Might Not Expect
Beyond the straightforward tax savings, novated leases offer a range of additional financial benefits that often go unnoticed but can make a significant difference to your overall cost of vehicle ownership.
Bundled Running Costs
Many novated leases include maintenance, insurance, tyres, registration, and even fuel or charging costs, all packaged into one fixed weekly payment. This means:
You avoid unexpected repair bills or premium insurance costs.
Your budgeting becomes simpler and more predictable.
Reduced Loan and Interest Charges
Unlike traditional car loans, where interest compounds on the total loan amount, novated leases often have more competitive rates and transparent fees, saving you money over time.
Novated Lease vs Buying: Which Saves More?
It’s not just about monthly payments. Here’s a side-by-side comparison to help understand the financial impact.
| Factor | Novated Lease | Buying a Car |
|---|---|---|
| Upfront Cost | Usually low or no upfront payment | High upfront cost or large loan |
| Tax Benefits | Payments from pre-tax income reduce tax | No tax advantage |
| Running Costs | Often bundled and prepaid | Paid out of pocket, variable |
| Ownership | Option to own after lease end by paying the residual | Own immediately |
| Depreciation Risk | Borne by the lessee at lease end | Borne by the owner immediately |
| Cash Flow | Predictable weekly payments | Larger payments early on |
When Leasing Makes More Sense
You prefer low upfront costs and predictable payments.
You want tax benefits to boost take-home pay.
You enjoy flexibility to upgrade vehicles regularly.
You want to avoid unexpected running costs.
When Buying May Be Better
You plan to keep your car for many years.
You want full ownership without residual payments.
You don’t benefit from salary packaging (e.g., self-employed).
Using a Novated Lease Calculator
Try a novated lease calculator to get a clear picture of your potential savings. By inputting your:
Salary
Vehicle price
Lease term
Expected running costs
The calculator can estimate weekly payments and tax savings tailored to your situation. This is invaluable for deciding if a novated lease fits your financial goals.
Final Thoughts
A novated lease can be a smart way to save money, especially if you’re in a higher tax bracket and want to make your salary work harder. Beyond tax benefits, predictable running costs and flexible vehicle options make it an attractive choice.
Whether you want to save on your next vehicle or simply want clearer budgeting, a novated lease is worth exploring.
Ready to find out how much you could save? Contact us today for personalised advice and start driving smarter!
FAQs
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Savings vary by salary and lease cost but can range from thousands to tens of thousands of dollars over the lease term.
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Yes, lease payments are deducted from pre-tax salary, reducing your taxable income and overall tax payable.
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FBT is a tax on benefits like novated leases. The Employee Contribution Method helps minimise FBT impact for employees.
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Not always, but leasing often provides better cash flow, tax advantages, and predictable running costs compared to buying outright.
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Use a novated lease calculator with your income and vehicle details for a personalised estimate.