Novated Lease Savings Calculator
Estimate your potential tax savings by salary packaging a vehicle in Australia.
The drive-away price of the car you intend to lease.
Your total income before tax.
The duration of your novated lease agreement.
Estimated total for fuel, insurance, registration, and maintenance per year.
Eligible EVs may be exempt from Fringe Benefits Tax (FBT).
Estimated Total Annual Savings
Income Tax Saving
$0
GST Saving
$0
New Taxable Income
$0
Savings are estimated by calculating the reduction in your taxable income from salary sacrificing car payments and running costs, plus the GST savings on the vehicle purchase and expenses. This novated lease savings calculator provides an illustration only.
| Metric | With Novated Lease | Buying with Cash (Post-Tax) |
|---|---|---|
| Vehicle Purchase | $0 | $0 |
| Annual Running Costs | $0 | $0 |
| Impact on Take-Home Pay (Annual) | $0 | N/A |
| Total Tax Saved (Annual) | $0 | $0 |
What is a Novated Lease Savings Calculator?
A novated lease savings calculator is a financial tool designed to estimate the potential tax benefits and overall cost-effectiveness of entering into a novated lease agreement in Australia. This type of lease is a three-way arrangement between you (the employee), your employer, and a finance company. Your employer makes payments for your car and its running costs directly from your salary—a significant portion of which is taken before income tax is deducted. This process, known as salary packaging, can substantially lower your taxable income, leading to significant savings. Our calculator helps quantify these savings for your specific situation.
This tool should be used by any salaried employee in Australia whose employer offers novated leasing as a benefit. A common misconception is that these arrangements are only for high-income earners or for individuals who use their car for business. In reality, a novated lease savings calculator can reveal significant benefits for many people, as the vehicle can be for 100% personal use. The primary benefit comes from the tax reduction, making it a powerful financial planning tool.
Novated Lease Savings Formula and Mathematical Explanation
The calculation behind a novated lease savings calculator involves several steps that account for income tax, Goods and Services Tax (GST), and Fringe Benefits Tax (FBT). The core principle is reducing your taxable income.
The calculation is generally as follows:
- Calculate Pre-Tax Deduction: The cost of the lease finance and all budgeted running costs (fuel, insurance, maintenance) are deducted from your gross salary.
- Calculate GST Savings: The finance company claims an Input Tax Credit (ITC) on the GST of the vehicle’s purchase price and running costs. This saving is passed on to you. For instance, on a $55,000 car, the GST saving is $5,000.
- Determine New Taxable Income: Your original gross salary minus the pre-tax deductions gives your new, lower taxable income.
- Calculate Income Tax Saving: The difference between the tax paid on your original salary and the tax paid on your new, lower taxable income is your income tax saving.
- Account for Post-Tax Contributions (ECM): To offset any Fringe Benefits Tax (FBT) liability, a portion of the cost is often paid from your post-tax salary. This is known as the Employee Contribution Method (ECM). Our novated lease savings calculator factors this in, especially for non-EVs.
- Total Savings: The total saving is the sum of the income tax saving and the GST savings.
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| Vehicle Price | The purchase price of the car. | AUD ($) | $20,000 – $80,000 |
| Annual Salary | Your gross income before tax. | AUD ($) | $60,000 – $200,000+ |
| Lease Term | Duration of the finance agreement. | Years | 1 – 5 |
| Running Costs | Annual budget for fuel, insurance, etc. | AUD ($) | $3,000 – $7,000 |
| Residual Value | Lump sum owed at the end of the lease, set by the ATO. | % of Price | 28.13% – 65.63% |
Practical Examples (Real-World Use Cases)
Example 1: Standard Petrol Car
Sarah earns $100,000 per year and wants to lease a petrol car valued at $44,000 (including GST). Her estimated annual running costs are $4,000. Using the novated lease savings calculator for a 5-year term:
- Vehicle Price (ex-GST): $40,000
- GST Saving on Purchase: $4,000
- Annual Pre-Tax Deduction (approx.): $8,000 (finance) + $4,000 (running costs) = $12,000
- New Taxable Income (approx.): $100,000 – $9,000 (pre-tax portion) = $91,000
- Estimated Annual Income Tax Saving: ~$2,900
- Estimated Annual GST Saving on Running Costs: ~$364
- Total Annual Saving: ~$3,264 (plus the initial $4,000 GST on the car purchase).
The calculator shows a clear financial benefit over buying the car with post-tax funds. Comparing a car loan vs a novated lease often highlights these tax advantages.
Example 2: Electric Vehicle (EV)
Tom earns $120,000 annually and wants an EV novated lease for a car valued at $66,000. EVs under the luxury car tax threshold are exempt from FBT.
- Vehicle Price (ex-GST): $60,000
- GST Saving on Purchase: $6,000
- Annual Pre-Tax Deduction (approx.): $12,000 (finance) + $3,000 (running costs) = $15,000
- New Taxable Income: $120,000 – $15,000 = $105,000
- Estimated Annual Income Tax Saving: ~$5,100
- Estimated Annual GST Saving on Running Costs: ~$273
- Total Annual Saving: ~$5,373 (plus the initial $6,000 GST saving).
The FBT exemption for EVs makes a novated lease exceptionally attractive, a key feature our novated lease savings calculator demonstrates.
How to Use This Novated Lease Savings Calculator
Our tool is designed for simplicity and accuracy. Follow these steps to estimate your savings:
- Enter Vehicle Price: Input the total drive-away price of the car.
- Enter Gross Annual Salary: This is crucial for calculating your marginal tax rate and potential income tax savings.
- Select Lease Term: Choose the desired length of your lease. A longer term generally means lower payments but a lower residual value percentage set by the ATO.
- Enter Annual Running Costs: Estimate your yearly expenses for fuel/charging, insurance, registration, and servicing.
- Select EV Status: Indicate if the vehicle is an eligible EV to apply the FBT exemption.
- Review Your Results: The novated lease savings calculator instantly updates your estimated annual savings, breaking it down into income tax and GST savings. The table and chart provide a deeper comparison against buying with cash.
Use these results to understand how a novated lease impacts your budget and take-home pay. The savings shown are the direct financial advantage of using this salary packaging strategy.
Key Factors That Affect Novated Lease Savings
The results from any novated lease savings calculator are influenced by several key factors:
- Your Income Level: The higher your marginal tax rate, the more you save on income tax. Someone in a higher tax bracket benefits more from reducing their taxable income.
- The Price of the Vehicle: A more expensive car means a larger GST saving on the initial purchase. However, it also means higher finance payments.
- Lease Term: The length of the lease affects the monthly finance cost and the final residual value payment required by the ATO.
- Annual Running Costs: The more you spend on running costs, the more you can save on GST for those expenses when they are bundled into the lease.
- Vehicle Type (EV vs. ICE): As shown, the FBT exemption for eligible Electric Vehicles (EVs) dramatically increases savings by allowing the entire lease cost to be deducted pre-tax without needing a post-tax employee contribution (ECM).
- Interest Rate on the Lease: The finance component of the lease has an interest rate. A lower rate, often secured through the novated lease provider’s fleet buying power, reduces the overall cost.
Frequently Asked Questions (FAQ)
Yes, you absolutely can. Our novated lease savings calculator works for both new and used cars, though conditions may apply depending on the age and value of the used vehicle. You can even use a sale and leaseback arrangement for a car you already own.
The lease is with you, not your employer. If you change jobs, you can typically transfer the novation to your new employer (if they agree) or continue making the payments yourself from your post-tax salary until you can re-novate it.
For most salaried employees, it offers significant tax savings. However, it’s a form of finance, so it’s less cost-effective than buying a cheap car with cash. A novated lease savings calculator helps you compare it against other financing options, like a personal car loan.
Not automatically. At the end of the term, you must pay the residual value. Your options are: pay the residual and own the car outright, trade the car in for a new one and start a new lease, or extend the existing lease.
You can choose to have a fully maintained lease where fuel, insurance, registration, and servicing are all bundled into your regular payment. This maximizes convenience and GST savings. Our novated lease savings calculator assumes these are included.
For internal combustion engine (ICE) vehicles, an ECM is used to reduce the Fringe Benefits Tax (FBT) liability to zero. By contributing from your after-tax pay, you offset the taxable value of the benefit.
This calculator provides a strong, reliable estimate based on current tax laws and standard leasing principles. However, for a formal quote, you should speak with a novated leasing provider who can account for specific interest rates and administration fees.
Yes. A major advantage of a novated lease is that there’s no requirement for business use. It’s a popular way to finance a personal car while benefiting from significant tax deductions, as demonstrated by the novated lease savings calculator.
Related Tools and Internal Resources
- Salary Packaging Guide: Learn more about the broader benefits of salary packaging beyond vehicles.
- FBT Explained: A deep dive into Fringe Benefits Tax and how it relates to employee benefits like cars.
- EV Novated Lease Benefits: Discover the unique and powerful advantages of leasing an electric vehicle.
- Car Loan vs. Novated Lease: A head-to-head comparison to help you decide on the best financing route.
- What is Residual Value?: Understand the final payment required at the end of your lease term.
- Sale and Leaseback Explained: Find out how you can set up a novated lease for the car you already own.