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Mechanisms explained

Most novated lease discussions focus on a single number: "you save $X".

That number is almost always a tax saving — the reduction in income tax and GST from paying for the car pre-tax. It is a real component of the benefit, but it is not the whole story, and in many cases it significantly overstates what you actually gain.

This section explains the financial mechanics behind novated leases in enough detail to let you evaluate whether a lease is genuinely worthwhile — and to spot where the numbers in a quote or calculator may be misleading.

What this section covers

  • Why "tax saved" is the wrong metric The tax saving figure answers the wrong question. The right question is: how does the total cost of the novated lease compare to the realistic alternative? This article explains the distinction clearly and shows why the two figures can differ by tens of thousands of dollars.

  • Real-life example: $21,320 "savings" → $5,591 net loss A worked example using an actual quote, showing how a headline saving of $21,320 becomes a net loss of $5,591 once the full cost comparison is done correctly. The most concrete illustration of why "tax saved" is not "net saving".

  • Why novated lease interest rates look high — yet may still work Novated lease effective interest rates often appear higher than car loan rates. This article explains why direct comparison is misleading, what the rate actually represents, and how to think about whether the rate is reasonable for your situation.

  • FBT, RFBA, and adjusted taxable income — explained clearly FBT is paid by the employer, not you — but it has downstream effects on adjusted taxable income (ATI) via RFBA. This matters for HECS/HELP repayments, childcare subsidy, Division 293 tax, and other means-tested assessments. EV and ICE leases behave very differently here.

  • All about residual values The residual value (balloon payment) is a mandatory end-of-lease liability set by the ATO. It is a real cost and must be included in any honest comparison. This article explains how residuals are calculated and why they matter.

  • You don't have to sell your car above residual value A common misconception is that a novated lease only "works" if the car sells for more than the residual. This article explains why that reasoning is flawed and what actually determines whether a lease is financially worthwhile.

  • The "$70k is too low for novated lease savings" myth — corrected A common forum claim holds that lower-income earners cannot benefit meaningfully from a novated lease. This article shows why that is mathematically wrong for anyone in the same tax bracket — while acknowledging the legitimate non-tax reasons to be more cautious at lower incomes.

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If it has helped you think more clearly, avoid a costly mistake, or saved you meaningful money, you're welcome to support its ongoing maintenance and improvements:

I'm backing Dr Michael Keane's fight for salary packaging transparency

Workplaces with an exclusive salary packaging provider tend to have noticeably higher effective interest rates on novated leases — yet the commercial terms behind these exclusive arrangements are rarely disclosed to employees.

Dr Michael Keane, a Melbourne anaesthetist, is taking a Victorian health service to the Victorian Supreme Court to obtain the unredacted contract between the hospital and its exclusive salary packaging provider. The unredacted version may shed light on alleged sign-on fees associated with exclusive access to hospital employees — an arrangement whose financial terms employees are rarely privy to.

To date, Dr Keane has personally spent around $15,700 pursuing this case, with further legal costs anticipated. I believe this matters to anyone in a workplace with an exclusive provider. If you agree, consider supporting his GoFundMe GoFundMe.