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Thinking about a novated lease, but wondering if it's worth it for you?
You might have heard it's a smart way to run your car and save on tax.
But between the financial jargon and conflicting advice, it's not always easy to figure out if a novated lease will see you better off financially.
While it may seem confusing at first, novated leasing is simpler than it sounds. At its heart, it's about making your salary work smarter while taking the hassle out of running your car.
From tax savings to simplified budgeting, there are real benefits worth considering.
In this guide, we'll walk you through everything you need to know about novated leasing – how it works, what you could save, and what to watch out for.
No complex jargon or hidden catches, just clear information on the novated lease pros and cons to help you make the right decision for your situation.
Before diving into the details of whether a novated lease is worth it, let's be clear about what a novated lease actually is.
At its simplest, it's a three-way agreement between you, your employer and a finance provider, with a company like Smart doing the legwork for you.
A novated lease lets you pay for a car from a portion of your pre-tax salary.
When you choose a novated lease, your employer takes care of your car lease payments by deducting a portion of them from your salary before tax.
This arrangement, which is fully approved by the ATO, continues throughout your chosen lease term of one to five years.
With a novated lease, you can use pre-tax income to pay for lease payments and expenses, reducing your taxable income.
Plus, you're saving the GST on both the purchase price and running costs^. This could mean thousands in tax savings over the life of your lease.
Novated leasing in Australia is available to most employees, if you have an employer that offers salary packaging. You can check if your employer offers it here.
You don't need to be a high-income earner or use the car for work – novated car leases are accessible to full-time, part-time, and in some cases, contracted employees.
Employers’ policies around novated leasing can vary. Government departments, healthcare organisations, and many corporate employers actively support novated leasing as part of their employee benefits program.
At Smart, we work with thousands of employers across Australia to make novated leasing accessible to their employees.
Some of the things that may be included in your novated lease payment are:
Looking at the advantages helps explain why a novated lease in Australia has become such a popular choice for employees and is worth considering.
From significant tax savings to simplified car management, the benefits extend well beyond just getting a new car.
When you choose a novated lease, you're essentially reducing your taxable income while getting all the benefits of a new car.
You'll save on income tax through pre-tax salary deductions, plus there's no GST on the purchase price – that's an immediate 10% saving on the purchase price^.
The tax benefits are even more substantial for electric vehicles. Thanks to the federal government's Electric Car Discount, eligible EVs can have 100% of their lease and running costs taken from your pre-tax salary*.
This policy makes EVs an increasingly attractive option for novated leasing, although as of April 2025, plug-in hybrids are no longer eligible for this exemption.
Our novated lease calculator can show you exactly how much you could save with an EV versus a petrol powered vehicle.
Managing a car can involve juggling multiple payments and unexpected costs throughout the year. With a novated lease, everything is bundled into one regular payment that comes straight from your salary.
You could benefit from our fleet discounts and buying power, plus our expert team handles all the negotiation on your behalf.
One of the biggest advantages of novated leasing is knowing exactly what your car budget will be each pay cycle. No more surprise bills or budget blowouts when unexpected repairs come up.
Costs such as your regular services to new tyres, can be included in your lease payments.
Even fuel or charging costs are covered through your fuel card, which also saves you the hassle of keeping receipts for expenses.
Contrary to what many people think, novated leasing isn't just for executives or high-income earners.
You can choose a new or used car^^, select a lease term that suits you (from one to five years), and use your car however you like – both for work and personal life.
When your lease ends, you can upgrade to a new car or explore other options.
While the benefits of novated leasing are significant, it's important to have a clear understanding of all the terms and costs before making your decision.
Like any financial commitment, there are certain aspects you'll need to consider carefully.
When you take out a novated lease, you're committing to regular payments for the term of your lease. At the end of the lease, there's a residual payment (sometimes called a balloon payment) to consider.
This amount is set based on guidance from the ATO and varies depending on your lease length. For example, a three-year lease will have a residual value of 46.88% of the car's original price.
You'll need to factor this into your long-term financial planning.
Unlike a car loan, you can't pay off a novated lease early through additional payments.
The lease terms are fixed, and early termination can involve additional costs. This means you need to be confident about committing to the full lease term when you sign up.
Your novated lease is tied to your employment, which means you'll need to think about what happens if you change jobs.
While it's usually possible to transfer your lease to a new employer, it's something you'll need to manage carefully.
While changing jobs might seem daunting with a novated lease, many employers today understand and accept these arrangements.
We work with thousands of employers across Australia and can help facilitate a smooth transition to your new workplace.
If your new employer doesn't offer novated leasing, we can help you explore options like converting to a consumer loan to maintain your car payments.
Every financial decision needs careful consideration, and a novated lease is no different.
Here's a practical checklist to help you evaluate if it's right for your situation.
It’s important to consider what the residual value of the car will be when your lease ends. This is the balloon payment amount you’ll be required to pay.
Here's how residual values usually work:
| Lease term | Residual percentage |
| 1 year lease | 65.63% residual |
| 2 year lease | 56.25% residual |
| 3 year lease | 46.88% residual |
| 4 year lease | 37.50% residual |
| 5 year lease | 28.13% residual |
These percentages represent the minimum residual value which can be set for a novated lease as determined by the ATO.
The residual value is included in your novated leasing quote, so you will know upfront what this costs will be at the end of your lease.
You have options in how you can manage this balloon payment at the end of your lease.
You can incorporate this amount into a new novated lease if you choose to upgrade your car, cover the amount by refinancing your vehicle or simply pay the amount if you want to own your car outright.
Taking the first step towards smarter car ownership is easier than you might think.
Whether you're ready to apply or just want to learn more, our team is here to help guide you through the process.
To help you make an informed decision, here are answers to some of the questions we hear the most about novated leasing value and benefits.
This is general information only. Before entering into any salary packaging or novated leasing arrangement, you should consider your objectives, financial situation and needs, and obtain appropriate legal, tax, financial, or other professional advice based upon your own particular circumstances. This information is current as at September 2025.
^GST is not payable on the purchase price of a vehicle financed through a novated lease (GST savings are calculated on the FBT base value of the vehicle, up to the claimable limit [$6,334 in FY 2025-26] unless exempt).
*The Electric Car Discount is available for eligible electric or hydrogen cell vehicles purchased through a novated lease up to the Luxury Car Tax limit ($91,387 in FY 2025-26) and allows lease payments to be paid with pre-tax salary. See the Australian Taxation Website for full eligibility criteria.
^^To package a used or current car, certain financier requirements must be met. Exact age requirements and minimum value depend on which financier you choose. Generally, vehicles should be less than 12 years old at the end of the lease term with a minimum value of $5000.