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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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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.