A novated lease is a popular way for employees to finance a car using pre-tax salary, potentially reducing taxable income and saving money. But with changing tax legislation, electric vehicle incentives, and changing interest rates, is a novated lease still worth it in 2025?
Let’s explore the pros, cons, and key considerations to help you decide whether a novated lease is the right option for you this year.
What is a Novated Lease?
A novated lease is a three-way agreement between you, your employer, and a leasing company. Instead of purchasing a car outright or taking out a personal loan, your employer deducts lease payments from your pre-tax salary and pays them to the lease provider.
This setup can provide tax benefits, bundled running costs, and budgeting ease—but it’s not always the best choice for everyone.
Advantages of a Novated Lease in 2025
1. Tax Savings on Salary Sacrificing
One of the biggest benefits of a novated lease is reducing taxable income by using pre-tax salary for lease payments. This means:
- Lower income tax
- Potential Fringe Benefits Tax (FBT) savings (especially on eligible electric vehicles)
If you’re in a higher tax bracket, this could lead to substantial savings over the lease term. The calculations for savings can be quite complex so please do not hesitate to contact a business accountant Melbourne, such as Nobel Thomas, to undertake novated lease calculations for you.
2. No GST on the Car Purchase Price
Since the leasing company buys the car, you don’t pay GST on the purchase price—a potential 10% saving on the vehicle’s cost. For example, if the car costs $66,000 including GST, you will only be required to salary sacrifice $60,000 out of your pay. Please do not hesitate to contact an accountant Melbourne for a further explanation and to run through the calculation with you.
3. Convenient Budgeting with Running Costs Included
Most novated leases bundle running costs such as:
- Fuel/charging costs
- Registration & insurance
- Servicing & maintenance
- This simplifies budgeting, as all car expenses are covered under one payment.
4. Electric Vehicle Incentives in 2025
Many governments are pushing for zero-emission vehicles, and novated leases often provide significant tax advantages on EVs.
- Australia exempts EVs from FBT, making them cheaper than petrol and diesel cars under a novated lease.
- Potential government grants or rebates may also apply, reducing upfront costs.
Disadvantages of a Novated Lease
1. You’re Locked into a Fixed Term
Novated leases usually last 2-5 years, and breaking the lease early can result in expensive exit fees. If you change jobs, you may need to transfer or pay out the lease.
2. It’s Not Always the Cheapest Financing Option
While tax savings can be appealing, interest rates and fees on novated leases can sometimes be higher than a standard car loan. It’s important to compare total costs before committing. Don’t hesitate to contact a business accountant Melbourne, such as Nobel Thomas, to undertake the calculations for you.
3. Limited Flexibility on Car Choice
Some employers or leasing providers may restrict vehicle choices, particularly for second-hand or luxury vehicles.
4. Fringe Benefits Tax (FBT) Can Apply
For non-electric vehicles, an employer may pass Fringe Benefits Tax costs onto the employee, reducing potential savings.
Who Should Consider a Novated Lease in 2025?
A novated lease could be worth it if:
- You’re in a higher tax bracket (higher tax savings)
- You want an electric vehicle (to take advantage of FBT exemptions)
- You prefer predictable budgeting with running costs included
- Your employer supports salary packaging
However, it might not be ideal if:
- You switch jobs often or have an unstable employment situation
- You prefer to own a car outright rather than lease
- You can secure a cheaper interest rate on a car loan
Final Verdict: Is a Novated Lease Worth It in 2025?
A novated lease can be a great option, especially if you’re purchasing an electric vehicle and are in a higher tax bracket. However, it’s essential to compare it with other financing options (such as personal loans or dealer finance).
Before signing a novated lease in 2025, ask yourself:
- How much will I actually save on tax? (an accountant Melbourne can work this out for you too)
- Is an EV a better option for tax benefits?
- What happens if I change jobs?
- Can I get a better interest rate elsewhere?
By crunching the numbers with the help of a business accountant Melbourne and understanding the terms, you can determine whether a novated lease is the best move for you in 2025.
