Novated Lease Review: Is It Worth It, EV and Plug-In Hybrid FBT, Residuals and Leaving Your Job (Australia, 2026)

Prepared by Claim Done from the Fringe Benefits Tax Assessment Act 1986, the Treasury Laws Amendment (Electric Car Discount) Act 2022, the National Credit Code, ASIC Regulatory Guide 203 and the ATO pages listed under Sources. Last checked 8 November 2026.

Novated leases at a glance

How does a novated lease work?

A novated lease has three parties. The ATO says: “This transfer of rights and obligations is agreed to in a deed of novation between you, the finance company and the lessee.”

The deed tells you which of three kinds you have:

• Full novation: the employer makes the lease payments and guarantees the residual value at the end of the lease.
• Split full novation: the employer makes the lease payments but “is not responsible for guaranteeing the residual value”. You keep that obligation.
• Partial novation: the original lease between you and the finance company is not revoked.

The employer pays the running costs and claims the deductions. The ATO says: “You can’t claim running costs for such a car because you don’t own or lease it”, though you may still claim extras such as parking and tolls for work use.

When salary sacrifice actually works

The ATO says salary sacrifice is effective only if you enter it before you do the work, under an agreement with your employer, with no access to the sacrificed salary. Pay already earned cannot be included. “Expenses paid with direct debits from your pay are not salary sacrificed.” An ineffective arrangement is taxed as ordinary income.

Is a novated lease worth it?

There is no single answer. The ATO does not advise on whether to enter one and recommends financial advice. These decide it:

1. The fringe benefits tax on the car. For a car that is not exempt, the ATO’s worked example uses the cost of the car times the statutory rate: a $35,000 car gives a taxable value of $7,000. “A flat statutory rate of 20% applies for FBT purposes, regardless of the distance travelled.”
2. Employee contributions. Your employer may ask you to make an after-tax “employee contribution” to reduce the FBT. In the ATO’s example, a $7,000 contribution reduces the pre-tax amount sacrificed from $17,353 to $4,145.
3. Whether the car is FBT-exempt. For an eligible battery electric car the car benefit is an exempt benefit (see below).
4. Fees and the running-cost budget. Establishment and management fees, and the yearly budget for fuel or charging, servicing, tyres, registration and insurance.
5. The residual. A higher residual lowers the lease payments but leaves a larger lump sum at the end.
6. Effects on other tests. The ATO lists the Medicare levy surcharge, study and training loan repayments, some tax offsets, child support and some government benefits as things salary sacrifice can affect. “You aren’t taxed on your RFBA. It is included in income tests for some government benefits and obligations.”

Electric cars and the FBT exemption

A car benefit is exempt from FBT under section 8A of the Fringe Benefits Tax Assessment Act 1986 if all of these are true:

• it is provided in respect of the employment of a current employee (s 8A(1)(a));
• the car is a zero or low emissions vehicle when the benefit is provided: a battery electric vehicle with no fuel cell or internal combustion engine, or a hydrogen fuel cell vehicle with no internal combustion engine (s 8A(2)-(4));
• no luxury car tax has become payable on a supply or importation of the car before the benefit is provided (s 8A(1)(c)). The ATO says the car’s value must be below the luxury car tax threshold for fuel-efficient vehicles at its first retail sale and any later sale. That threshold is $91,661 for 2026-27 and was $91,387 for 2025-26;
• the car was first both held and used on or after 1 July 2022 (Electric Car Discount Act, Sch 1 item 7(2)).

For an eligible car, private use and the electricity to charge it are exempt. The ATO says a home charging station is not a car expense; it may be a property or expense payment fringe benefit.

Two points are easy to miss. An exempt electric car is still a reportable fringe benefit (FBTAA s 135P(3)), so it can still affect the income tests above. And the ATO says: “The government will complete a review into this exemption by mid-2027”. No change had been made to s 8A as at the 1 July 2026 compilation.

Novated lease on a plug-in hybrid: the FBT rules since 1 April 2025

Plug-in hybrids are no longer in the list of exempt cars. The removal applies to benefits provided on or after 1 April 2025. A plug-in hybrid lease keeps the exemption only if all of these are true:

• before 1 April 2025, someone committed to providing the car for a period that began before 1 April 2025;
• no new commitment was made on or after 1 April 2025;
• a car benefit was provided before 1 April 2025; and
• that benefit was exempt under s 8A.

The ATO lists events that create a new commitment and end a grandfathered exemption from that time: an optional extension of the lease, a break in the novation (for example unpaid leave where the novation ends), a change to the lease payments or the residual (for example adding accessories to the lease), and a change of employer. A change made under a clause in the original agreement that already allows flexible charges, such as adding roadside assistance to a bundled service charge, is not a new commitment.

In our reading, a new novated lease on a plug-in hybrid signed today is treated like any other car that is not exempt.

The residual (balloon) payment

The residual is the lump sum left at the end of the lease. You will need to pay it, refinance it or sell the car. The ATO sets minimum residual values for cars on an 8-year effective life:

The ATO’s example: a $40,000 car on a 3-year lease has a residual of “46.88% of $40,000 = $18,752”.

Why the residual has to be set properly

If the lease is not a bona fide lease, the ATO says the arrangement becomes a property fringe benefit or a residual fringe benefit instead of a car fringe benefit, which “may mean you pay more FBT”. All three conditions must be met:

• all dealings are at arm’s length and on commercial terms;
• the residual is a reasonable estimate of end-of-lease market value, not based on a price net of a trade-in or cash contribution, and not below the ATO minimum; and
• there is no pre-existing agreement for you, an associate, nominee or agent to buy the car, or keep using it, after the lease ends.

A trade-in or cash contribution must not reduce the lease payments or the residual.

What happens to a novated lease if I quit or lose my job?

The lease usually comes back to you. The ATO says: “The deed of novation usually contains a clause that transfers the lease obligations back to the lessee on termination of the lease or when the employee ceases employment with you.” That lets you start a new novated lease with a new employer, but the actual result depends on your deed.

In our reading, once the lease reverts there is no car fringe benefit from that employer, so you pay the lease and running costs from after-tax income. The electric car exemption needs a current employee (s 8A(1)(a)), so it ends for that employer too. For a grandfathered plug-in hybrid, the ATO treats a change of employer as a new commitment.

Unpaid leave can have a similar effect: in the ATO’s example, an employee on unpaid leave was personally responsible for the lease payments while the novation ended.

Before you sign, find the clause that deals with leaving your job and check:

• whether the lease reverts to you, or must be paid out;
• any payout, termination or administration fees;
• who holds any unspent running-cost budget.

Does consumer credit law protect a novated lease?

Generally not. The National Credit Code says its consumer lease Part “does not apply to a consumer lease under which goods are hired by an employee in connection with the employee’s remuneration or other employment benefits” (NCC s 171(2)). The consumer lease rules in the National Consumer Credit Protection Act follow the Code’s definition (NCCP Act s 5). ASIC’s guide on credit licensing lists employment-related leases as excluded, and gives as an example “a lease novated to an employer and paid under salary sacrifice arrangements”.

In our reading, the consumer lease responsible lending, disclosure, hardship and enforcement rules therefore do not apply to your novated lease, so the contract terms matter more.

One exception: a hire where you have a right or obligation to buy the goods can be treated as a sale by instalments (NCC s 9(1)), and the ATO’s bona fide test requires that there be no pre-existing agreement to buy.

What our review checks

Upload the novated lease quote, the lease and the deed of novation, and get a plain-English report written for the employee, usually about 5 minutes after you pay. It:

• says whether the deed is a full, split full or partial novation, and who carries the residual
• works out the cost over the term and the residual, in dollars and against the ATO minimum
• lists every fee and each running-cost budget line with its yearly amount, so you can compare them with what you really spend
• flags any clause that commits you to buy the car or keep using it at the end, and checks how a trade-in or cash contribution was treated
• checks a claimed electric car exemption against the s 8A conditions, the 1 July 2022 date, the luxury car tax threshold and the plug-in hybrid rules
• finds the clause that applies if you leave your job or take unpaid leave, and the fees that follow
• gives you the questions to ask your employer and the leasing company before you sign

The report explains what your documents say and what the ATO rules provide. It does not calculate your tax, and it is not legal, tax or financial advice. You decide whether to sign.

Get your novated lease reviewed – $49

Questions people ask

Is a novated lease worth it?

It depends on the car, the fees, the residual and your own tax position. A non-exempt car attracts FBT under a formula with a flat 20% rate, which employee contributions can reduce, while an eligible battery electric car can be exempt. The ATO does not advise on whether to enter one and recommends financial advice.

How does a novated lease work?

Your employer takes over the lease obligations under a deed of novation between you, your employer and the finance company. The employer makes the lease payments and pays the running costs through your salary package. Under a split full novation you still owe the residual at the end.

Is a plug-in hybrid on a novated lease still FBT-exempt?

Not for a new lease. Plug-in hybrids lost the exemption for benefits provided from 1 April 2025. An earlier lease keeps it only if a commitment was made and an exempt benefit provided before that date, and it is lost again on a new commitment such as an optional extension, a change to the payments or residual, or a new employer.

Which electric cars are FBT-exempt on a novated lease?

Battery electric cars and hydrogen fuel cell cars, provided to a current employee, first held and used on or after 1 July 2022, and valued below the luxury car tax threshold for fuel-efficient vehicles, which is $91,661 for 2026-27 (FBTAA s 8A; ATO).

Does an FBT-exempt electric car still affect my income tests?

Yes. An exempt car benefit is still a reportable fringe benefit (FBTAA s 135P(3)). The reportable amount is included in income tests such as the Medicare levy surcharge, study loan repayments, child support and some government benefits.

What happens to a novated lease if I quit?

The lease usually transfers back to you. The ATO says deeds of novation usually contain a clause that hands the lease obligations back when you stop working for the employer. You then pay it yourself or start a new novated lease with a new employer, depending on your deed and any fees it sets.

What is the minimum residual on a novated lease?

The ATO minimum is 65.63% of the car’s cost for a 1-year lease, 56.25% for 2 years, 46.88% for 3 years, 37.5% for 4 years and 28.13% for 5 years (ATO ID 2002/1004). A residual below the minimum can mean the lease is not bona fide, which may mean more FBT.

Do I have to pay the residual at the end of a novated lease?

Under a split full novation, yes: the employer makes the lease payments but does not guarantee the residual. Under a full novation the employer guarantees it. Either way the residual has to be paid, refinanced or met by selling the car when the lease ends.

Is a novated lease covered by consumer credit law?

Generally not. The National Credit Code’s consumer lease rules do not apply to goods hired by an employee in connection with their remuneration (NCC s 171(2)), and ASIC gives a salary-packaged novated lease as an example.

Is the novated lease review legal or financial advice?

No. It is a plain-English report on what your quote, lease and deed say, what they cost and what the ATO rules provide. It does not calculate your tax or tell you whether to take the lease. Claim Done is not a law firm.

Related guides

• Car finance contract review: balloon payments, add-on insurance and guarantors
• Employment contract review before you sign
• Car dealer sold you an extended warranty or add-on you didn’t need?
• All contract reviews

Claim Done is not a law firm and does not give legal, tax or financial advice; this page is general information about Australian law and ATO guidance as at 8 November 2026. How the rules apply to you depends on your own documents and circumstances.

Sources (checked 8 November 2026)

• Fringe Benefits Tax Assessment Act 1986 (Cth), Compilation No. 97 (ss 8A, 9, 135P)
• Treasury Laws Amendment (Electric Car Discount) Act 2022 (Cth), as made (Sch 1 item 7, Sch 2 item 5)
• National Consumer Credit Protection Act 2009 (Cth) and National Credit Code, Compilation No. 52 (NCCP Act s 5; NCC ss 9, 171)
• ATO: electric cars exemption
• ATO: FBT on plug-in hybrid electric vehicles
• ATO ID 2002/1004: car lease residual values
• ATO: GST and vehicles purchased under novated leases
• ATO: salary sacrificing for employees
• ATO: reportable fringe benefits for employees
• ATO: expenses for a car you own or lease
• ATO: luxury car tax rate and thresholds
• ASIC Regulatory Guide 203: Do I need a credit licence?