What Is a Novated Lease and How Does It Work?
A novated lease is a salary packaging arrangement involving you, your employer, and the finance company. It allows you to lease a vehicle with repayments made from your pre-tax salary, which can reduce your taxable income and streamline vehicle ownership.
As novated leasing continues to grow in popularity, 2025 brings with it several updates that are worth understanding—particularly around tax treatment, electric vehicle (EV) incentives, and employer adoption.
1. Fringe Benefits Tax (FBT) Exemptions for EVs Continue
One of the most significant drivers of novated leasing in the past couple of years has been the FBT exemption for eligible plug in hybrid electric vehicles (PHEVs) and electric vehicles (EVs). On 1st of April 2025, this exemption ended for PHEVs. However,it still remains in place for qualifying EVs, provided they fall under the relevant price threshold (the luxury car tax limit for fuel-efficient vehicles).
This policy continues to make novated leasing an appealing option for employees considering EVs, especially those seeking to combine environmental benefits with potential cost advantages. The ongoing support from the Australian government reinforces the shift toward more sustainable vehicle options across fleet and individual use.
2. Employer Participation Is Growing
More employers are incorporating novated lease programs as part of their broader employee benefits offerings. In 2025, there’s a notable increase in medium-sized businesses partnering with salary packaging providers, giving employees more options beyond traditional remuneration models.
This shift is driven by:
- FBT Exemption for EVs and PHEVs (before 1st April 2025)
- More employees are demanding for it
- Greater awareness of novated leasing’s flexibility
- Interest in employee wellness and benefits
- Positive feedback from existing lease participants
This trend means more Australian workers now have access to novated lease arrangements through their employer—making the model more mainstream than ever before.
3. EV Availability Is Improving
The Australian market is seeing a growing range of novated lease–friendly electric vehicles, many of which are priced below the FBT exemption threshold. Brands like BYD, MG, Tesla, KIA and Hyundai are regularly releasing new models tailored to meet local demand.
Increased EV supply in 2025, driven by improved import pipelines and dealer inventory, means shorter wait times and broader eligibility for novated lease packaging. This expands choice for drivers looking for low-emission alternatives without compromising on value or features.
4. Enhanced Tools and Tech Integration
Novated lease tools and platforms are becoming more user-friendly and data-driven, allowing employees to compare vehicles, manage running costs, and track lease inclusions with ease. This enhanced visibility helps users make more informed choices aligned with their budgets and preferences.
Employers and salary packaging providers are also streamlining onboarding and approval processes, meaning leases are easier to start and manage digitally.
Important Clarifications
While Fingo assists in content and research related to novated leasing, Fingo is not a finance provider. Any leasing agreements or salary packaging arrangements are handled directly through authorised finance companies and your employer.
2025 is shaping up to be another strong year for novated leasing, with growing employer support, favourable EV incentives, and a larger pool of vehicle options. Whether you’re looking at novated leasing for the first time or considering an upgrade, staying across these trends can help you better evaluate your options.
As always, be sure to review your eligibility and speak with your payroll or salary packaging provider before proceeding.
Frequently Asked Questions
What is a novated lease, and how does it benefit employees in 2025?
A novated lease is a three way agreement between an employee, their employer and a finance provider that allows the employee to lease a vehicle using a combination of pre and post tax salary. Instead of taking out a car loan or paying upfront for a vehicle, the employee has their lease payments and optional running costs deducted through payroll. This arrangement can significantly reduce taxable income and simplify the total cost of owning and running a car.
In 2025, novated leasing remains one of the most tax efficient ways for Australians to access a new car. Employees can bundle running costs such as servicing, registration, tyres, insurance and fuel or EV charging into a single regular payroll deduction. This creates predictable monthly costs and removes the stress of large one off bills.
Government incentives also continue to support novated leasing for electric vehicles. Eligible Battery Electric Vehicles remain FBT exempt, which can save drivers thousands of dollars over the life of the lease. The convenience of driving a new car with no upfront payment, combined with tax savings and transparent budgeting, is why novated leasing continues to be widely adopted across Australia in 2025.
For employees new to this structure, reviewing a detailed overview of how a novated lease works can help clarify the practical benefits and determine whether salary packaging aligns with personal financial goals.
Are electric vehicles still exempt from Fringe Benefits Tax (FBT) in 2025?
Yes. The FBT exemption for eligible battery electric vehicles remains in place throughout 2025. To qualify, the vehicle must fall under the fuel efficient luxury car tax threshold, which is $91,387 for the 2025 to 2026 financial year. Many popular EVs in Australia fall below this cap, making them ideal for salary packaging.
Plug in hybrid electric vehicles no longer receive FBT exemptions from 1 April 2025 unless they were purchased and started their novated lease agreement before the cut off date and remain within the transitional period. As a result, full battery electric vehicles have become the most tax effective choice for employees looking to maximise their novated lease benefits. This exemption applies whether the vehicle is used mainly for private or business purposes, which adds to its appeal.
The continuation of the exemption means EVs represent some of the most financially attractive novated lease options in 2025 and going into 2026, particularly for drivers who want lower running costs and a reduction in taxable income.
For more detail, employees often review explanations of the EV FBT exemption and broader guidance on novated lease FBT rules before committing.
Can my employer offer novated leasing if they are not a large corporation?
Yes. Novated leasing is no longer limited to large companies or government departments. In 2025, a growing number of small and medium sized businesses offer novated leasing as part of their employment benefits. Many employers partner with salary packaging providers who manage the setup, administration, payroll adjustments and compliance requirements on their behalf.
For employers, offering a novated lease program is cost neutral and involves minimal administrative overhead once the system is in place. The employer does not purchase the vehicle or take on the lease obligation. They simply facilitate the pre tax deductions and maintain the salary packaging arrangement. As a result of their employees’ taxable income reduction, employers may also benefit from lower payroll tax exposure.
For employees, this means you do not need to work for a large corporation to access a novated lease. If your workplace has not offered it before, it is reasonable to ask HR or payroll, as demand has increased in recent years and many businesses are adding the benefit to assist with staff attraction and retention.
Additional insight into how businesses of all sizes implement these programs can be found in resources explaining whether companies of any size can provide novated leases.
What types of EVs are available under novated leasing now?
Electric vehicle availability has improved significantly in Australia, and 2025 offers the widest range of EVs suitable for novated leasing to date. Improved supply chains and increased dealership stock mean employees can choose from a diverse selection of models that fall within the FBT exempt price cap.
Popular options include models from Tesla, BYD, MG, Kia and Hyundai. Many of these brands offer EVs with different battery sizes, performance levels and interior features, which helps drivers find something that fits their lifestyle. Compact EVs suit inner city commuters, while larger models suit families or drivers who require more boot space and longer range capability.
With more manufacturers entering the Australian EV market, there are new choices in hatchbacks, sedans and SUVs. This variety allows employees using a novated lease to prioritise features such as driving range, charging speed, safety ratings, cabin size or technology packages.
Guides covering the best cars for a novated lease in 2026 and dedicated pages on EV novated leasing can help narrow down suitable options.
How has novated lease technology improved in 2025?
Technology improvements have made novated leasing more transparent and user friendly than ever. Modern platforms now include digital tools that help employees understand the full financial picture before committing to a lease. Real time novated lease calculators show expected repayments, tax savings and running cost estimates based on annual kilometres and vehicle type.
Cost tracking features allow drivers to see how their fuel, charging or servicing budgets are performing throughout the year. Many salary packaging providers now offer mobile apps or online dashboards where employees can upload receipts, monitor spending categories and adjust budgets if needed. This level of visibility helps prevent overspending and allows drivers to stay in control of their lease.
Digital onboarding has also streamlined the process for employers. Payroll updates, compliance checks and approvals can be handled electronically, reducing paperwork and speeding up the time between selecting a car and receiving it.
Employees often begin this process by modelling scenarios with a novated lease calculator, which makes the financial impact clearer before speaking with a consultant. These technological advancements make novated leasing more accessible for first time users and more efficient for businesses that support large groups of employees.
