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Running costs & claiming

The fortnightly novated lease deduction is made up of two components: lease repayments and running costs. Understanding how the running costs portion works — and the pitfalls around it — is essential to getting the full benefit of a novated lease.

Running costs are not fees. They are your own money, set aside pre-tax each pay cycle and held in a dedicated account until you spend on eligible car expenses. Managed well, this is a straightforward way to pay for fuel, tyres, servicing, registration, and insurance with pre-tax dollars.

Managed poorly — or with an employer who doesn't pass on all the entitlements — running costs can quietly erode the benefit you expected.

What this section covers

  • Running cost budgets are a "piggy bank" Running costs are not a fee charged to you — they are pre-tax money set aside in a separate account, claimed back as you spend. This article explains the mechanics, what happens if you over- or under-budget, and why getting the budget right matters.

  • The ATO 4.2c/km EV charging shortcut — how it actually works EV owners can claim 4.2c/km for home charging costs without keeping electricity records. This article explains the three permitted methods, how the shortcut works in the context of a novated lease, and the counter-intuitive finding that you can make extra money by claiming this — even if your charging is free.

  • Failure to pass on GST savings — an overlooked cost in some novated leases When running costs are paid through a novated lease, the employer can claim the GST back as an input tax credit and pass the saving on to you. Not all employers do this — effectively making your running costs 10% more expensive than they should be. This article explains how to tell whether your employer passes on the saving.

  • Insurance premium vs excess in a novated lease Insurance is typically included in the running cost budget and paid pre-tax, which changes the premium vs excess trade-off analysis. This article explains the mechanics and how the pre-tax discount affects the decision between a lower premium and a lower excess.

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