The example
On a $100,000 salary over five years, with 4% interest forgone on cash:
| Novated lease | Buy outright | |
|---|---|---|
| $55,000 electric car | $66,600 | $91,324 |
| $40,000 petrol car | $72,488 | $81,324 |
The cash totals include the $3,500 on-road costs, five years of running costs, and interest forgone of $12,674 (EV) and $9,424 (petrol). Without counting interest forgone, cash would cost about $78,650 for the EV, still more than the lease.
Worked figures come from this calculator with: 2026-27 tax rates and Medicare levy, a five-year lease at 8.5% interest, the ATO minimum residual (28.13%), a $500 establishment fee and $15 monthly fee, $3,500 on-road costs, 15,000 km a year, NSW registration of $1,100 and insurance of $1,500, paid fortnightly. Your provider's rate and fees will differ; change them in the calculator.
Why paying cash can cost more
A $55,000 car bought with cash costs $55,000 of after-tax money. Through a lease, the same car is paid from pre-tax income with the $5,000 GST claimed back, and the running costs are packaged too. At a 32% combined tax rate, every pre-tax dollar costs you 68 cents of take-home pay. Interest and fees eat into this, but for an EV they rarely eat all of it.
When cash wins
- Cheaper used cars: novated leases are mostly for new or near-new cars, and the tax saving is smaller.
- Low incomes: at the 15% bracket, there is little tax to save.
- Short ownership or uncertain employment.
- High lease rates and fees.
- If you would otherwise put the cash in a mortgage offset at a high rate: set the interest-forgone rate to your mortgage rate.
A middle way
Some people put part of their cash into the lease as a larger residual or a lower amount financed, or keep the cash in an offset account and lease. The calculator lets you test a higher residual with the slider, and you can enter a lower price to represent a cash contribution.
How a novated lease works
A novated lease is a three-way agreement between you, your employer and a finance company. The finance company leases you a car; your employer agrees to make the payments out of your salary for as long as you work there. Your employer also pays the running costs (fuel or charging, registration, insurance, servicing and tyres) from the same budget. Because these come out of your pay before tax, your taxable income falls, and because your employer is registered for GST, it claims back the GST on the car and its running costs. At the end of the lease you pay a lump sum, the residual, to own the car, or you refinance or sell it.
The catch is fringe benefits tax (FBT). A car your employer pays for is a fringe benefit. For petrol and hybrid cars, providers cancel the FBT by having you pay part of the cost out of your after-tax pay: the employee contribution method (ECM). For eligible electric cars there is no FBT at all, so the whole cost can come out of pre-tax pay. That is why novated leases have become popular for electric cars.
What providers don't show, and how to read a quote
- The interest rate. Many quotes show only a weekly or fortnightly deduction. Ask for the interest rate, the amount financed and the residual in writing; with those, this calculator reproduces the lease payment.
- Fees. Establishment fees, monthly management fees and "budget" fees for running costs add up over five years. Enter them all.
- Running-cost budgets. Quotes often include generous fuel, tyre and servicing budgets that inflate the per-pay deduction. Unspent budgets are usually returned, but check how and when.
- Insurance and extras. Gap insurance, extended warranties and paint protection are often bundled. They are optional.
- The residual. It must be at least the ATO minimum for the term. A higher residual lowers your deductions but leaves more to pay at the end.
- Discounts on the car. Providers negotiate fleet prices, but compare the drive-away price with what a dealer would offer you directly.