What’s a novated lease and how does it benefit employees?
A novated lease is basically a tax savvy way to finance a car, and a popular alternative to a buying a car outright or through a personal loan. It’s a simple arrangement that can offer real advantages for both employees and employers, from easier budgeting and tax savings to a more attractive benefits package for employees. But how does novated leasing actually work, and is it a good fit for your business and your employees?
What’s a novated lease?
With a novated lease, an employee gets to pay for a car through their salary, with lease payments and most running costs bundled into one regular payment. And because part of this payment can come from pre-tax salary, it may help reduce their taxable income. The agreement between the employee, the employer and the lender looks like this:
The employee chooses the car and can use it with no mileage restrictions
The employer makes the lease payments from the employee’s salary
The finance provider or lender owns the car
How novated leasing works
At a high level, there are 5 steps to the novated leasing process:
- Employee selects a new or used car (within lender criteria)
- The novated lease is arranged through a provider like Streetfleet
- Employer deducts payments from a mix of the employee’s before and after-tax salary
- Running costs (things like fuel, servicing, rego and insurance) are bundled into one regular payment
- Lease term ends and the employee can pay the residual and own the car outright, extend the lease and keep the car, or upgrade to a newer model
If the employee leaves, the lease goes with them, so the business isn’t liable for any outstanding payments.
How does salary packaging work for novated leasing?
Similar to salary sacrificing into super, you can salary package a car through a novated lease. Instead of paying for it entirely with after-tax income, some of the lease and running costs get paid from your pre-tax salary. This can reduce your taxable income and may lead to tax savings, depending on your individual situation.
With a novated lease, Fringe Benefits Tax (FBT) can apply. To manage FBT, most novated leases use a mix of:
- Pre-tax contributions (to reduce taxable income)
- Post-tax contributions (to offset FBT using the Employee Contribution Method)
At Streetfleet, we structure this balance, so the employee gets the best possible outcome while staying compliant.
How does a novated lease benefit an employee?
Some of the key benefits include:
- Potential tax savings
Because part of the lease is paid from pre-tax salary, employees may pay less income tax overall. - Buying power
A leasing provider like Streetfleet that’s backed by vehicle management and leasing company, Streetfleet, has access to fleet pricing, which can reduce the upfront cost of the vehicle. - Budgeting certainty
With fuel, servicing, insurance and registration bundled into one regular payment, it means less surprise bills and easier budgeting. - Flexibility at the end of the lease
Employees can choose to pay the residual and own the car outright, extend the lease and keep the car, or upgrade to a newer model.
What are the Australian tax rules for novated leases?
Novated leases in Australia are shaped by a few key tax considerations:
Fringe Benefits Tax (FBT)
Cars provided through salary packaging are generally subject to FBT. However, this can often be minimised or eliminated using post-tax contributions.
Electric Vehicle (EV) FBT exemption
Eligible EVs are exempt from FBT under current Australian legislation thanks to a government incentive called the EV Discount. Because there’s no FBT, lease payments can come entirely from pre-tax income, which can significantly increase the tax benefits.
To qualify, the EV must:
- Be a battery electric vehicle (BEV) or hydrogen fuel cell vehicle
- Not be a plug-in hybrid (PHEVs are no longer eligible from 1 April 2025)
- Be first used on or after 1 July 2022
- Cost below the luxury car tax threshold (currently $91,387 for the 2025–26 financial year)
- Be provided through an employer arrangement, such as a novated lease
GST savings
You don’t pay GST on the purchase price of the vehicle, which can mean a noticeable saving upfront.
Novated lease example
Scenario:
- An employee’s salary: $90,000
- The value of the car they lease: $40,000
- The lease term: 5 years
- Average annual kilometres driven: $15,000
Savings:
- Employee could save $11,957.40 over 5 years with a novated lease
Novated leasing an electric vehicle
With fuel costs soaring and the EV Discount’s FBT exemption, there’s never been a better time to lease an EV.
The EV Discount is only available with a novated lease, and it means you:
- Pay no FBT on eligible EVs
- Get to pay lease payments entirely from pre-tax salary
This makes EVs one of the most cost-effective options under a novated lease.
Novated lease EV example
Scenario: BYD Atto 3 Premium Wagon D5dr
- An employee’s salary: $120,000
- The lease term: 5 years
- Average annual kilometres driven: $15,000
- Employee could save $16,225 over 5 years with a novated lease
Savings:
$16,225*
(at time of quote and dependent on manufacturer pricing)
The benefits of novated leasing for SMEs
From an employer perspective, novated leasing is surprisingly simple.
There’s no cost to the business:
payments come from the employee’s salary
No long-term liability
the lease stays with the employee
Attractive employee benefit
helps with attraction and retention
Minimal admin
Streetfleet handles most of the legwork
Why lease with Streetfleet?
Streetfleet are 100% Australian-owned, part of the One SMG group, and have been supporting organisations across Australia and New Zealand with fleet and novated leasing since 1998. We’re all about making novated leasing simple. Our goal is to take what can feel like a complex process and turn it into something easy, clear and stress-free. With a straightforward 3-step quoting process and support at every stage, getting into your next car, whether it’s for tax benefits, convenience or an EV upgrade, is easier than you think. We take care of the details, and you get a dedicated consultant guiding you along the way. No call centres, no runaround, just real support when you need it, backed by a team that understands the Australian market inside and out.