Do I own the car at the end of a novated lease?

Not automatically. A residual, or balloon, amount is still owed at the end of the term. You can pay it out to own the car, refinance it, or trade the car in, but it is a real cost to plan for.

Does the electric car FBT exemption make the car free?

No. The exemption removes the Fringe Benefits Tax on an eligible electric car, not the price of the car, the finance or the running costs. It makes leasing an eligible EV more tax-effective, but you still pay for the vehicle.

Can I still get the exemption on a plug-in hybrid?

For a new arrangement, no. From 1 April 2025 a plug-in hybrid is no longer treated as a low-emissions vehicle for this exemption. It can only stay exempt where it was already in use and exempt before that date under a binding commitment, and changing that arrangement ends it.

What happens to my novated lease if I change jobs?

The arrangement with your old employer ends and the lease usually reverts to you, so you keep paying from after-tax income unless you transfer it to a new employer who offers packaging or refinance it. This link to your job is a key reason a plain car loan can suit less certain employment.

Novated lease vs car loan: which is cheaper? (2026-27)

Tax › Introduction

Your workplace offers salary packaging, or you are pricing up a new car and a lease broker has promised big tax savings. Somewhere in the pitch is the word novated, and it is doing a lot of heavy lifting. A novated lease can genuinely save money, especially on an electric car, but it is not the automatic win the ads suggest, and a plain car loan is sometimes the smarter, simpler choice. Here is how they really compare.

What a novated lease is

A novated lease is a three-way arrangement between you, your employer and a financier. Your employer agrees to take on the lease and pays for the car, and usually its running costs too, fuel or charging, registration, insurance and servicing, out of your salary before some of the tax is applied. Paying from pre-tax salary is what lowers your taxable income and creates the saving.

Because your employer is handing you a car to use privately, the tax system treats it as a fringe benefit, and Fringe Benefits Tax can apply. The usual way around that is the employee contribution method, where you pay part of the cost from your after-tax salary to bring the fringe benefits tax down, often to nothing. It works, but it means the headline pre-tax saving is smaller than the brochure implies once the after-tax portion and the lease fees are counted.

A novated lease lowers your taxable income and saves the GST on the car. It does not make the car free, and the fees are real.

What a car loan is

A car loan is the plain option. You borrow with after-tax money, you buy the car, and you own it. Your employer is not involved, so nothing is tied to your job. With a secured loan the lender can repossess the car if you stop paying; an unsecured loan usually costs more in interest but leaves the car free of that claim. For a car you use privately, the interest and running costs are not tax deductible, so there is no tax angle to it. What you gain instead is simplicity and freedom to change jobs, sell up or keep the car for a decade without anyone else in the arrangement.

One thing to watch on either path is a balloon or residual at the end, a lump sum still owed after the regular payments finish. It lowers the monthly figure but raises the total cost, so read for it.

The electric car exemption

This is where a novated lease stops being marginal and starts being compelling. An eligible electric car provided through salary packaging is exempt from Fringe Benefits Tax altogether, and even the electricity to charge it is covered. Take the fringe benefits tax out of the picture and the pre-tax saving flows through cleanly, which is why so much of the novated lease conversation is now about EVs.

To qualify, the car has to tick three boxes: it is a battery electric or hydrogen fuel-cell vehicle, it was first held and used on or after 1 July 2022, and its price sits under the luxury car tax threshold for fuel-efficient vehicles. That threshold is reset by the ATO every year, a little over $91,000 for 2026-27, so check the current figure against the car you are looking at rather than assuming.

Two honest caveats. The exemption removes the tax, not the cost: you still pay for the car, the finance and the running. And the benefit is still reported on your income statement, which can touch other income-tested things, so it is not entirely invisible.

The plug-in hybrid trap

Here is the detail that catches people out, because for a couple of years plug-in hybrids qualified too. They no longer do. From 1 April 2025, a plug-in hybrid is not treated as a low-emissions vehicle for this exemption, so a new plug-in hybrid lease does not get the FBT break.

There is one narrow carve-out. If you already had a plug-in hybrid in use and exempt before 1 April 2025, and you were financially locked into continuing that same arrangement, it can keep the exemption for the rest of that committed term. The moment you change the arrangement, or if you were only offered an optional extension rather than a binding one, the exemption ends. If someone is selling you a plug-in hybrid lease today on the promise of the EV tax break, that promise is out of date.

Which one suits you

Neither is universally better. It comes down to your rate, your car and your job:

A novated lease leans in your favour whenyour employment is stable, your income puts you on a higher marginal rate, your employer offers packaging, and above all when the car is an eligible EV. That combination is where the real savings live.

A car loan is often the smarter call whenyour job might change, the car is cheap enough that the lease fees outweigh the tax saving, you want to own it outright and keep it for years, or you simply value not tying a car to your employer.

Remember the exit.If you leave your job mid-lease, the arrangement usually reverts to you, and you keep paying from after-tax income until you transfer or refinance it. And the residual still has to be paid at the end, either way.

The short version: for an eligible EV on a stable, higher income, a novated lease is often the clear winner. For a cheap petrol runabout or an uncertain year ahead, a plain loan is usually the calmer choice.

Know your marginal rate first

A novated lease saves most at higher tax rates. See exactly where your income lands before you weigh up an offer.

Income tax calculator →

General information only, not financial advice. Lease and finance details vary, so check the numbers for your own car and salary, and confirm current thresholds with the ATO.