Buying a Tesla? How a 'Novated Lease' Saves You $5,000+ in Tax Every Year

Buying a Tesla?

You need a new car. You walk into a dealership, negotiate a price of $60,000, and get a car loan. You pay the monthly repayments from your bank account after you have already paid huge income tax.

This is the "expensive" way to own a car.

Smart employees in Australia use a Novated Lease. This allows you to pay for the car and all its running costs from your Pre-tax Salary.

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What is a Novated Lease?

It is a three-way agreement between You, Your Employer, and a Finance Company.

Instead of paying you your full salary, your employer takes a portion out to pay for your car lease before calculating your tax. Because your taxable income is lower, you pay less tax to the ATO.

What it covers:

• Lease payments (the car itself).
• Petrol or Electricity charging.
• Comprehensive Insurance and Registration (Rego).
• Servicing, Tyres, and Maintenance.

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The "EV Loophole" (FBT Exemption)

Usually, when your boss gives you a car, you have to pay Fringe Benefits Tax (FBT). This used to make leasing expensive.

However, the Australian Government introduced a massive incentive: Electric Vehicles (EVs) under the LCT threshold are FBT EXEMPT.

*Note: The exemption for Plug-in Hybrids (PHEVs) ended on 1 April 2025. Now, only pure electric cars qualify for the full tax break.

💰 The Tesla Math (Example - 2026 Rates)

Let's say you earn $120,000 and want a $65,000 Tesla Model Y.

• Standard Loan: You pay with post-tax money. You need to earn significantly more to cover the payments.
• Novated Lease (EV): You pay everything pre-tax. You save the 10% GST on the purchase price (up to the claim limit) AND save your marginal tax rate (30% + Medicare Levy) on every dollar spent on the car.

Result: Even with the Stage 3 tax cuts lowering rates, you could still be better off by $3,500 to $5,000 per year compared to a standard car loan.

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What About Petrol Cars?

Can you still lease a Toyota RAV4 or Ford Ranger? Yes.

However, petrol cars are NOT FBT exempt. To avoid paying huge FBT, you must use the "Employee Contribution Method" (ECM).

• You pay some costs from pre-tax salary and some from post-tax salary.
• This neutralizes the FBT liability.
• Verdict: It still saves you the GST on the purchase price and running costs, but the savings are smaller than with an EV.

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The "Residual Value" (Balloon Payment)

A Novated Lease is not a purchase; it is a lease. At the end of the term (usually 1-5 years), you do not own the car yet.

To keep the car, you must pay a Residual Value (Balloon Payment). This is set by the ATO (e.g., approx. 28.13% of the car's value after 5 years).

Strategy: Most people sell the car (tax-free profit if sold for more than the residual) and start a new lease on a brand new car.

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Chief Editor’s Verdict

If you have a stable job and are planning to buy an EV, a Novated Lease is a no-brainer.

It is likely the only time in your life the ATO will let you buy a luxury item tax-free. Just ensure the car price is below the Luxury Car Tax threshold for fuel-efficient vehicles (approx. $91k+) to maximize the benefit.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial or tax advice. Tax laws, including FBT exemptions and income tax brackets, are subject to change. The example calculations are estimates only. Please consult with a qualified accountant or salary packaging provider to understand how a lease affects your specific financial situation.