Novated Lease Savings Calculator
Estimate your potential tax savings and see if a novated lease is the right financial choice for your next vehicle.
The full drive-away price of the car you are considering.
Your total yearly income before tax.
The duration of the novated lease agreement.
Includes fuel, insurance, registration, servicing, and tyres.
What is a Novated Lease Savings Calculator?
A novated lease savings calculator is a financial tool designed to estimate the potential savings an employee can achieve by financing a vehicle through a novated lease arrangement. This type of lease is a three-way agreement between an employee, their employer, and a finance company. The core benefit comes from making car payments and covering running costs with a combination of pre-tax and post-tax salary, which can significantly lower your taxable income and reduce the amount of income tax you pay. Our calculator helps quantify these benefits for your specific financial situation.
This tool is ideal for any salaried employee in a country where novated leasing is common (like Australia) who wants to compare the costs of acquiring a new or used car. It helps you move beyond estimates and see real numbers based on your salary, the car’s price, and your running costs. A common misunderstanding is that novated leases are only for people who use their car for business. In reality, they are available for 100% private use, with the tax benefits structured slightly differently.
Novated Lease Savings Formula and Explanation
The calculation for a novated lease is multi-faceted, as it involves income tax, Goods and Services Tax (GST), and Fringe Benefits Tax (FBT). The primary goal is to maximize pre-tax deductions while ensuring FBT is offset. Our novated lease savings calculator uses the following logic:
Total Savings = Income Tax Saved + Total GST Saved
- Income Tax Saved: This is the difference between the tax paid on your full salary and the tax paid on your salary after the pre-tax portion of your car’s costs has been deducted.
- Total GST Saved: You don’t pay GST on the purchase price of the car (claimed by the financier) or on the running costs that are part of the lease budget. This calculator estimates the annual GST savings based on your inputs.
- Post-Tax Contribution: To eliminate FBT liability, an employee makes a contribution from their after-tax pay. This amount is determined by the vehicle’s value and is a critical part of the calculation.
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| Vehicle Price | The purchase price of the car. | Currency ($) | $20,000 – $100,000+ |
| Annual Gross Salary | Your income before any taxes are deducted. | Currency ($) | $50,000 – $250,000+ |
| Lease Term | The length of the lease agreement. | Years | 1 – 5 |
| Annual Running Costs | Yearly expenses like fuel, insurance, and maintenance. | Currency ($) | $2,000 – $8,000+ |
Practical Examples
Example 1: Mid-Range Salary, Standard Car
An office manager earning $85,000 a year decides to lease a $40,000 car over 3 years, with annual running costs of $4,000.
- Inputs: Vehicle Price = $40,000, Annual Salary = $85,000, Lease Term = 3 years, Running Costs = $4,000.
- Results: The novated lease savings calculator would estimate an annual net saving of approximately $3,500 – $4,500. This comes from significant income tax reduction and saving the GST on running costs and the vehicle’s depreciation.
Example 2: Higher Income, More Expensive Car
A project manager earning $150,000 a year leases a $70,000 electric vehicle over 4 years, with annual running costs of $3,500 (lower due to no fuel).
- Inputs: Vehicle Price = $70,000, Annual Salary = $150,000, Lease Term = 4 years, Running Costs = $3,500.
- Results: Due to being in a higher tax bracket, the savings are amplified. The calculator would show an estimated annual net saving of around $7,000 – $8,500. For more info, check our {related_keywords} guide.
How to Use This Novated Lease Savings Calculator
- Enter Vehicle Price: Input the total drive-away cost of the car.
- Enter Annual Gross Salary: Provide your pre-tax yearly salary. This is crucial for the tax calculation.
- Select Lease Term: Choose the desired duration of your lease from the dropdown menu. A longer term means lower annual payments but may change the overall cost.
- Estimate Annual Running Costs: Enter a realistic figure for your yearly fuel, insurance, registration, and maintenance expenses.
- Review Your Savings: The calculator will instantly update to show your estimated annual savings, broken down into tax and GST savings. The charts and tables will also provide a clear comparison of running the car with and without a lease. You can explore our guide on {related_keywords} for more details.
Key Factors That Affect Novated Lease Savings
- Your Income Level: The higher your marginal tax rate, the more you save in income tax for every pre-tax dollar spent.
- The Price of the Car: A more expensive car leads to larger lease payments and running cost budgets, increasing the potential for pre-tax deductions. It also determines the post-tax contribution required.
- Lease Term: A shorter term increases the annual pre-tax deductions but also increases the annual post-tax contribution required to offset FBT.
- Annual Running Costs: Packaging higher running costs into the lease increases the amount deducted pre-tax, boosting tax savings. Explore our {related_keywords} analysis for deeper insights.
- Vehicle Type (e.g., Electric Vehicles): EVs and PHEVs may be eligible for FBT exemptions in some regions, which can dramatically increase savings by eliminating the need for a post-tax contribution.
- Your Employer’s Policy: Your employer must agree to offer novated leasing. Some may have specific policies or partner with certain providers. Our {related_keywords} page has more on this.
Frequently Asked Questions (FAQ)
1. What happens at the end of the lease term?
You typically have three options: 1) Pay the residual amount (a final balloon payment) and own the car outright. 2) Refinance the residual amount and continue leasing the same car. 3) Trade in the car for a new one and start a new novated lease.
2. Can I get a novated lease for a used car?
Yes, most novated lease providers allow leasing of used cars, although there may be restrictions on the age and mileage of the vehicle.
3. Do I need to use the car for business to be eligible?
No. A key benefit of a novated lease is that it can be for a vehicle used 100% for private purposes. The tax benefits still apply.
4. What is FBT and how does the calculator handle it?
Fringe Benefits Tax (FBT) is a tax employers pay on benefits provided to employees. For cars, it’s calculated on the vehicle’s value. This is almost always offset by using the ‘Employee Contribution Method’ (ECM), where you make a post-tax payment that cancels out the FBT liability. Our novated lease savings calculator automatically includes this required post-tax contribution in its figures.
5. Are the running cost estimates fixed?
The running cost budget is an estimate. If you spend less, the leftover funds are typically returned to you (and taxed). If you spend more, you may need to contribute extra funds.
6. What if I change jobs?
If you change jobs, you can usually transfer the lease to your new employer (if they agree), pay out the lease, or continue paying for it yourself outside of a novated arrangement.
7. Is a novated lease always the cheapest option?
Not always. It depends heavily on your income and the car. For lower-income earners or very cheap cars, the benefits may be minimal. That’s why using a novated lease savings calculator is so important. For more comparisons, see our article on {related_keywords}.
8. Does the calculator account for different tax laws?
This calculator uses a standardized tax model common in countries like Australia. Your specific tax situation may vary. It should be used as a reliable estimate, but not as formal financial advice.
Related Tools and Internal Resources
Explore our other financial calculators and guides to make informed decisions.
- {related_keywords}: Understand the different types of car financing available.
- Loan Repayment Calculator: Compare a standard car loan to a novated lease.
- Income Tax Calculator: See how different deductions can impact your take-home pay.
- {related_keywords}: A detailed look at the tax implications.
- Budget Planner: See how car payments fit into your overall financial picture.
- Car Running Costs Calculator: Estimate your annual vehicle expenses in detail.