Novated Lease vs Buying Outright: What Are the Real Numbers?
A novated lease beats buying outright only when the after-tax value of salary packaging and any eligible EV FBT treatment is larger than the lease’s finance cost, fees and residual drag. The comparison must use the same car, running costs, lease term and end-of-term vehicle value; comparing only the fortnightly payment will produce the wrong answer.
What belongs in an outright-purchase comparison?
Include the vehicle’s driveaway price, registration, insurance, servicing, tyres, energy or fuel and any expected sale value. If the cash would otherwise sit in an offset or investment, model the interest or investment return you give up. That opportunity cost can be material and is often omitted from simple lease comparisons.
How does the residual change the result?
A novated lease does not pay the entire vehicle price through regular deductions. The residual is due at the end, so the quote’s apparent cash-flow advantage is not the same as the final cost of owning the car. Add the residual to the lease side, then subtract the vehicle’s expected value consistently on both sides.
When is buying outright likely to be stronger?
Buying outright is more likely to win when the car is inexpensive, your marginal tax rate is low, the provider’s fees or interest rate are high, or the quote assumes running costs you would not actually incur. It can also be preferable when you want to avoid a contractual residual or need flexibility to sell the car early.
Worked example: compare the same $55,000 EV
For a $55,000 EV on a three-year lease, a 46.88% residual would be about $25,784. A fair comparison adds the lease’s after-tax pay impact and running costs, then includes that residual and the car’s value at month 36. Buying outright adds the $55,000 cash purchase and running costs, but leaves you with the car. The winner is the option with the lower net cost after that end value is included.
Common questions about this decision
Is a novated lease always cheaper for an EV?
No. An eligible EV can receive favourable FBT treatment, but the result still depends on the vehicle price, finance rate, fees, salary, running costs and residual. Run the complete after-tax comparison rather than assuming the exemption guarantees a saving.
Should I include my mortgage offset rate?
Yes, if the cash used to buy the car would otherwise stay in an offset. The forgone interest is an opportunity cost of buying outright and should be compared with the lease’s finance and fee costs.
Which primary sources support this guide?
Tax treatment changes. For the underlying rules, check the current Australian Taxation Office material before acting: