Skip to content

The "$70k income is too low for novated lease savings" myth — corrected

A common piece of forum advice reads something like:

"If you're on $70k, your income is too low to derive any real saving from a novated lease."

The same person will rarely raise the same objection for someone earning $130k.

This claim is mathematically incorrect — at least when it comes to the savings achieved per dollar spent pre-tax. Understanding why reveals something important about how marginal tax brackets actually work.

Why the claim is wrong: same tax bracket, same discount

The core insight is straightforward:

The 30% marginal tax bracket applies from $45,001 all the way up to $135,000.

Both a $70k earner and a $130k earner sit comfortably within that same bracket. Since the effective discount from spending pre-tax dollars equals your marginal rate plus the 2% Medicare levy, both earners enjoy the same 32% effective discount on every pre-tax dollar spent on the lease.

As explained in why "tax saved" is the wrong way to think about novated leases, spending pre-tax income is equivalent to receiving a discount:

  • 30% bracket → 32% discount effect
  • 37% bracket → 39% discount effect
  • 45% bracket → 47% discount effect

To make this concrete: suppose a lease involves $15,000 per year in pre-tax lease payments over three years.

Income After-lease taxable income Marginal rate Effective discount
$70,000 $55,000 30% 32%
$130,000 $115,000 30% 32%

Both earners:

  • Remain within the 30% bracket throughout the lease
  • Receive the same 32% effective discount on every dollar of lease payments
  • Experience broadly similar effects on means-tested calculations1

The dollar saving on the lease portion is therefore identical for a $70k and a $130k earner — not smaller for the lower earner.2

But the concern is potentially valid — for other reasons

So why does this advice persist, and is there anything to it?

The underlying intuition is not entirely wrong. There are legitimate reasons why someone on $70k may be less suitable — they just have nothing to do with the size of the tax saving or net saving.

If you've read the article on when a novated lease is worth it, you'll know that one's appropriateness for novated lease is highly context-dependent. For lower-income earners, several risk factors are more likely to apply:

  • Saving for a house deposit — lease payments reduce take-home pay and make it harder to accumulate a deposit, which tends to be a more immediate constraint at lower incomes
  • Less job security — earlier-career workers change employers more often, and early termination of a novated lease can carry significant costs
  • Less capacity to cover the balloon payment — the residual value must be settled at lease end. Without sufficient savings, you may be forced into a new lease cycle indefinitely — which becomes far less ideal if the EV FBT exemption is discontinued
  • Greater relative sensitivity to policy changes — if FBT exemption for EVs is removed or means-tested benefits are reduced, the same dollar-for-dollar change hurts relatively more on $70k than on $130k, even if the absolute figure is identical

While each of these factors is independent of tax savings, lower-income earners are collectively more exposed to them. It is reasonable to approach novated leasing with more scrutiny at lower incomes — not because the savings mechanism is less effective, but because the risks and opportunity costs are higher.

Key takeaway

A $70k earner and a $130k earner in the same marginal tax bracket achieve identical dollar savings from novated lease payments. The common claim that "$70k is too low to benefit" is mathematically wrong when it comes to the tax saving mechanism.

However, lower-income earners face legitimate non-tax reasons to be more cautious: fewer financial buffers, higher relative risk exposure, and less flexibility to absorb adverse events. These concerns are real — they just don't come from the savings amount per se.

Support this independent calculator & guide

This calculator and guide are built and continuously maintained as an independent project.

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.

  1. There are some edge cases where the two situations can diverge — for instance, if the lease happens to push someone below a HELP repayment threshold, or affects a particular means-tested benefit differently. These are worth checking individually, but they do not change the main conclusion in most cases. ↩

  2. One edge case where a $70k earner could derive a lower saving than a $130k earner: if the annual lease payment exceeds $25,000, pushing their taxable income below $45,001. In that scenario, part of the pre-tax spending falls into the lower 16% + 2% Medicare bracket, reducing the average effective discount. ↩