Novated leases – What The Quote Is Really Telling You

The savings look impressive on paper. But before you sign, here’s how to read what’s actually happening to your money.

 

The Marketing vs The Maths

Novated lease quotes are masterclasses in presenting the best version of the numbers. Leads like “save $24,942 over 60 months” are designed to anchor you to a big, exciting figure. The problem? That number is built from components that need unpacking — because some of that “saving” comes right back out of your pocket through a different door.

The key question to ask: “After everything — including what I repay at the end — how does my real out-of-pocket cost compare to just buying the car outright?”

Breaking down “Total Savings”

Take a typical quote claiming $24,942 in total savings. That number is usually made up of three parts:

– Tax savings
$15,340

– GST savings
$3,268

– GST on purchase
$6,334

Each of these deserves scrutiny. They’re not all equal, and one of them — the GST saving — is arguably not a saving at all.

The GST “Saving” Myth

What they say You save $6,334 in GST on the car purchase — the employer claims the GST back.

This is technically true. Because the lease goes through your employer, they can claim the GST input tax credit on the vehicle purchase. So you don’t pay GST on the driveaway price — on paper, that’s a genuine saving upfront.

The reality The ATO grosses that GST saving back up for FBT purposes.

Here’s what the quote doesn’t explain: the GST saving gets added back into your Fringe Benefits Tax (FBT) base value. The FBT base value in a typical quote is the driveaway price minus on-road government costs — but it doesn’t reduce for the GST credit your employer received. That means you’re paying FBT on a higher base, which flows through to your fortnightly deductions. You don’t get the GST saving “for free.” You pay for it — just spread out, and labelled differently.

Bottom line on GST: The headline GST saving is real in one sense — you don’t pay it upfront. But the grossed-up FBT calculation effectively recovers much of it from you over the lease term. It’s not $6,334 in your pocket. It’s a timing difference, at best.

The Tax Saving — Real, but Conditional

The income tax saving is the most legitimate part of the equation. Running costs like fuel, registration, insurance, and the finance component come out pre-tax, so you do get a genuine tax shield based on your marginal rate.

But here’s what the quote assumes:

– Your income stays at the quoted salary for the full 60 months

– Your tax rate doesn’t drop (if it does, the saving shrinks)

– You don’t leave your employer mid-term (which can create a balloon liability overnight)

– You actually drive the quoted annual kilometres — under-driving means FBT exposure

The quoted salary matters: This quote uses a salary of $301,600. At that level, the 47% marginal rate (including Medicare levy) makes the tax saving very attractive. If your income is lower — say $120,000 — the maths looks materially different. Always rerun with your actual salary.

What the quote doesn’t put in big numbers

The fortnightly take-home impact is $699.49. Over 60 months that’s $18,187 out of your after-tax pay. Add in the residual value of $21,502 you owe at the end, and your actual out-of-pocket cash outflow is closer to $39,689 — before you account for what you get back (a car, presumably worth the residual).

Compare that to buying outright: you’d pay the $69,490 driveaway cost with after-tax dollars. The question is whether the tax shield over 60 months bridges that gap — and whether the running cost inclusions (insurance, tyres, registration, servicing) are priced competitively inside the package or whether you’d get them cheaper on the open market.

The comparison that matters: Total lease outflows (fortnightly payments + residual) versus total cost of ownership if you bought outright and funded running costs yourself. That gap — adjusted for your tax rate — is the real number. Get your accountant or financial planner to model it.

Questions to ask before you sign

– What is the effective interest rate embedded in the finance component?

– Are the budgeted running costs (insurance, tyres, servicing) competitive, or inflated?

– What happens to the lease if I change jobs? Who is liable for the residual?

– Has the FBT been modelled correctly for my actual salary and kilometres?

– What is the total cash I will have paid out over 60 months, including the residual?

– Have I compared this to a personal loan or cash purchase on an apples-to-apples basis?