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Novated lease vs buying outright

Paying cash avoids interest and fees, but every dollar comes from after-tax pay. A novated lease adds interest and a residual, yet pays the car and running costs partly or fully from pre-tax salary. In 2026-27 the lease tends to cost less for FBT-exempt EVs and more for cheaper petrol cars. Source: ATO tax and FBT rates.

Key facts

Figure	Value	Source
Marginal rate 2026-27, $45,001 to $135,000	30% plus 2% Medicare levy	ATO, checked 17 Oct 2026
Car statutory formula rate	20% of base value a year	ATO, checked 17 Oct 2026
EV FBT exemption	First held and used on or after 1 Jul 2022; LCT never payable	ATO, checked 17 Oct 2026

For anyone with the cash to buy outright who wants to compare the after-tax cost.

General information only, not financial or tax advice. Our calculator shows this comparison for your own numbers. Background: how a novated lease works.

How each option is paid
Item	Novated lease	Buying outright (cash)
Car cost	Lease payments (incl. interest) from salary, then the residual at the end	Drive-away price up front
Running costs	Packaged; pre-tax for exempt EVs, partly post-tax (ECM) otherwise	Paid from after-tax pay
Tax	Lower taxable income, so lower income tax + Medicare ATO	No change
FBT	Exempt EV: nil (reportable). Others: 20% statutory formula, usually reduced to nil by ECM ATO	Not applicable

Worked example

$100,000 salary, 3 years, example 8% rate, running costs included, residual paid at the end:

BEV $60,000: lease $67,368 vs cash $75,000.
Petrol $40,000: lease $53,952 vs cash $52,000.

What the comparison leaves out

Interest you could earn (or mortgage interest you could save) on the cash: not modelled.
Resale value: both options end with you owning the car, so it is treated as equal.
Provider fees and insurance differences: not verified; ask each provider.
GST credits: optional assumption only (ask your employer whether they can claim them). The car credit is capped at $6,353, 1/11 of the 2026-27 car limit of $69,883 (ATO).

Frequently asked questions

Is it better to buy a car outright or use a novated lease?

In our model an FBT-exempt EV usually costs less on a novated lease (a $60,000 BEV: $7,632 less over 3 years), while a $40,000 petrol car costs $1,952 more. This ignores interest you could earn on the cash and lessor fees.

Is it better to buy an EV outright or lease it?

The EV FBT exemption lets the whole package, including running costs, come from pre-tax pay, which is the main reason a lease can beat cash. Check the rate and fees in a real quote, and that the car meets the ATO conditions.

By Abdisalan Awale, editor. Published by Abdisalan Awale, ABN 64 886 470 398 (about us). Last reviewed 17 Oct 2026 against the sources on our sources page. Not yet reviewed by a qualified third party. How we calculate: methodology.