Many Australians unknowingly miss between $3,000 and $5,000 each year by paying for their car with after tax income.
Fuel/Charing, servicing, insurance, tyres, and even the vehicle itself are often paid for with money that has already been taxed by the ATO. Over time, these costs add up and significantly increase the real cost of owning and running a car.
With the 2026 Stage 3 tax cuts now in effect, understanding novated lease savings has become more important than ever. Changes to marginal tax rates mean the way you pay for your vehicle can have a much bigger impact on your take home pay than it did in previous years.
Where Novated Lease Savings Come From
Novated lease savings exist because vehicle costs are structured differently compared to traditional car ownership. Instead of paying everything from after tax income, eligible expenses are packaged through your salary.
GST savings on the purchase price
When a vehicle is purchased under a novated lease, the leasing provider buys the car on your behalf. This means GST is not payable on the purchase price of the vehicle, up to the ATO Input Tax Credit limit of $6,334 for the 2025 to 2026 financial year.
This upfront saving alone can reduce the cost of a new car by thousands of dollars.
Income tax savings through salary packaging
Another reason people ask whether a novated lease is worth it is the impact on income tax. Lease payments and eligible running costs can be deducted from a combination of pre and past tax income, reducing taxable earnings.
For employees on moderate to high marginal tax rates, this can significantly lower the real cost of running a vehicle.
Managing Fringe Benefits Tax
Fringe Benefits Tax can apply to novated leases, but the Employee Contribution Method can reduce this tax to zero when structured correctly. This ensures novated lease savings are preserved without unexpected tax liabilities. And currently eligible electric vehicles may be exempt from Fringe Benefits Tax under the ATO’s electric car exemption.
So How Much Can You Save With a Novated Lease?
There is no single answer, as novated lease savings depend on your income, the vehicle you choose, how much you drive, and how the lease is structured.
Once you understand where the savings come from, the next step is applying them to your own situation. The easiest way to do this is to calculate your savings based on your income and vehicle choice.
This allows you to see whether a novated lease is worth it for you in 2026 compared to paying for your car with after tax income.
The 2026 EV Opportunity
For drivers considering an electric vehicle, novated leasing can unlock even greater savings.
Eligible electric vehicles under the Luxury Car Tax threshold of $91,387 for FY 2025 to 2026 can qualify for a Fringe Benefits Tax exemption. This means no FBT is payable on the lease, which can significantly reduce weekly costs.
In some cases, a higher priced electric vehicle can cost less per week than a cheaper petrol car once tax savings and lower running costs are taken into account. This makes EVs one of the most cost effective salary packaging options in 2026.
Simplicity With Fingo Novated Leasing
Beyond the tax benefits, novated leasing offers simplicity.
Fingo provides a structured approach that bundles finance, fuel, registration, servicing, and other running costs into one predictable payment. Payroll reporting and administration are handled to make the arrangement easier for both employees and employers.
For a broader explanation of how this works, see novated leasing in Australia.
Frequently Asked Questions
Is a novated lease worth it for middle income earners?
A novated lease can be worth it for middle income earners, particularly when salary packaging reduces taxable income and bundles running costs into one payment. The value depends on your tax bracket, vehicle choice, and annual kilometres, but many employees find novated lease savings make it a competitive option compared to after tax ownership.
How much can you save with a novated lease compared to a car loan?
The savings compared to a car loan come from GST savings on the vehicle purchase, income tax reductions through salary packaging, and the ability to bundle running costs pre tax. In many cases, this results in a lower total cost of ownership over the life of the vehicle.
Do novated lease savings change if I change jobs?
If you change jobs, your novated lease can usually be transferred to your new employer, provided they agree to take over the arrangement. If this is not possible, the lease typically reverts to a standard finance arrangement, which may reduce the overall savings.
Is a novated lease still worth it after the 2026 tax changes?
For many employees, novated leasing remains worthwhile after the 2026 tax changes. While tax brackets have shifted, the combination of GST savings, pre tax deductions, and Fringe Benefits Tax management continues to deliver meaningful novated lease savings for eligible employees.
Can novated lease savings vary year to year?
Yes. Novated lease savings can change based on adjustments to tax rates, salary changes, variations in driving habits, or changes to running costs. Reviewing your arrangement periodically helps ensure it remains suitable for your situation.
What happens at the end of a novated lease?
At the end of a novated lease, you typically have several options, including paying out the residual value, refinancing the residual, upgrading to a new vehicle, or selling the car. The best option depends on your financial position and whether the novated lease continues to be worth it for you.