Calculator
Buy vs. Lease Calculator
Buy vs. Lease Calculator
ATO statutory residual rates apply to the novated lease term.
Employee Contribution Method (ECM)
Post-tax contribution offsets the novated lease's FBT liability.
Cheaper Option Over 3-Year Term
$20,292.96
Comparison Analysis
Over 3 years the novated lease is estimated to cost $30,710.76 after $15,877.12 of income tax and Medicare savings and $5,954.55 of GST credits — about $20,292.96 cheaper than buying the same car on a $40%-resale-value basis at 8.5% finance. The trade-offs: an ATO residual of $25,784 sits at the end of the lease, and the Employee Contribution Method is applied to offset the FBT, so weigh the cash-flow benefit against the end-of-term structure.
Estimates only. Results depend on your employer's lease provider fees, the actual FBT taxable value, loan comparisons, depreciation, and insurance. Novated leases and salary sacrifice affect the Super Guarantee base and may have reportable implications. Obtain a written quote from a provider before deciding. Educational only, not financial advice.
Salary Packaging a Car vs Buying It Yourself
Novated leasing is one of the most common salary sacrifice decisions Australian employees make: instead of buying a car with after-tax dollars, your employer pays for a lease and its running costs out of your pre-tax salary, shrinking your taxable income in the process. The ATO sets a statutory residual value the balloon must clear at lease end, and fringe benefits tax (FBT) is managed, usually through the Employee Contribution Method. For earners in the upper tax brackets, the combination of income tax savings and GST credits can beat buying outright. But the maths is not automatic. Lease margins sit roughly two percentage points above a car loan, the FBT offset costs after-tax money, and the statutory residual means you must clear a lump sum or roll over at term end. Meanwhile, buying with normal finance is transparent: you know your repayments and you own the resale. The honest comparison adds up everything each path costs over the same term — finance, running costs, tax, GST credits, residual or resale — and shows which leaves more money in your pocket. That is exactly what this calculator does.
Two Parallel Cost Flows, One Term
The lease side mirrors the ATO statutory framework. The residual is a fixed percentage of the car price set by the ATO: 65.63% for a one-year lease down to 28.13% for five years. Annual finance equals the price minus residual divided by the term, plus a lease administration margin of about 6%. From the gross lease cost, you recover income tax at your marginal rate (including Medicare) and GST credits on the car (capped at $5,000) and on running costs. If you elect the Employee Contribution Method, an after-tax contribution reduces the FBT burden the provider would otherwise pass on. The purchase side is simpler: a standard car loan at the market comparison rate over the same term, plus the same running costs, minus the expected resale value you recover at term end. The total cost of each path over the term is summed, and the difference is the true saving of one route over the other. Because the lease saves a slice of every dollar pre-tax while buying costs every dollar after-tax, the comparison depends on your tax bracket, the rate spread, and how quickly the car depreciates — all of which you can stress-test with the sliders.
Expert Insights
Your Marginal Rate Is the Biggest Lever
Novated leasing saves money because the lease dollars come out of your pre-tax pay. At a 37% marginal rate plus Medicare, roughly 39 cents of every package dollar is never taxed; at 19%, only 21 cents. This is why the tool breaks even for lower earners while saving high earners thousands a year. Before asking a provider for a quote, work out your true marginal rate including the Medicare levy — that single number drives the entire calculation.
The Residual Is a Real Liability, Not Fine Print
The ATO residual is not optional: it is the minimum balloon you must clear or roll over when the lease ends. A five-year novated lease on a $65,000 car carries a residual near 28% of the value. Many lessees are surprised by this lump sum because the low weekly repayments mask it. Factor your exit plan into the decision — will you pay out the residual, refinance it, or roll into a new lease? The cheapest-looking weekly figure often hides the largest end-of-term decision.
EVs Bend the Rules in Your Favour
Eligible electric vehicles under the electric car exemption threshold escape the fringe benefits tax that ordinary cars attract, and they carry no fuel excise or reduced registration in several states. For an EV, the lease side of this comparison gains the tax offset without the employee contribution drag, which is why novated EV packages have exploded. If you are torn between an EV and an ICE car, run both through this tool with realistic running costs — the EV's lower fuel and servicing costs compound the tax advantage.
Actionable Tips
- 1
Get a Written Novated Quote Before Comparing
Lease margins, fees, and administration charges vary widely between providers and are often buried in the fine print. Ask for a written quote listing the margin, establishment fees, and any ongoing admin charges, then re-run this calculator with those real figures. A provider charging an extra 1% margin over five years can erase a meaningful slice of the tax saving you were counting on.
- 2
Stress-Test the Resale Assumption
The purchase path only wins if you recover decent resale value at term end. Use RedBook or Glass's valuations to estimate what your specific make and model typically fetches as a private sale at that age, and adjust the resale percentage slider. If you plan to trade it in at a dealer, expect a haircut on that figure. An optimistic resale assumption is the single most common reason the 'buy' side of this comparison looks better than it turns out to be.
- 3
Run the Numbers Every Time You Change Jobs
A novated lease is tied to your employer. If you resign or are made redundant, the lease and its obligations transfer to you, including the residual. Before signing a long lease term, check your employer's novated leasing policy, confirm they permit the transfer on exit, and keep a cash buffer for an early payout. Re-running this calculator after a salary change or job move keeps the comparison honest.
Real-World Examples
Priya's SUV Package Beat Buying by $9,400
Priya, on $185,000 a year, was quoted a five-year novated lease on a $65,000 family SUV. Running this calculator showed the lease costing roughly $16,300 less than buying at her car loan rate, thanks to $23,000 of pre-tax tax savings and $4,900 of GST credits. She confirmed the provider's margin matched the assumption, signed the package, and now budgets the employee contribution from her post-tax pay without feeling it.
Marcus Bought Because His Bracket Made Leasing Marginal
Marcus earns about $72,000 and wanted a $35,000 hatch. The lease quote looked attractive until he checked his marginal rate: at 32% plus Medicare the saving was real, but the lease margin was 7.9% versus a 6.9% car loan from his bank. The calculator showed buying ahead by roughly $1,900 over three years once the margin spread and his modest resale were factored in. He took the bank loan, kept the title, and sold the car privately at term end.
Elena's EV Made the Decision Easy
Elena was choosing between a $55,000 electric car and the same car with a petrol engine. The EV qualified for the FBT exemption, so the lease carried no employee contribution drag. The calculator's lease side saved over $11,000 versus buying on finance, and her running cost allowance (charging, rego, servicing) was $2,000 lower per year than the petrol model. She novated the EV and treats the exemption as a genuine part of her remuneration.
Glossary of Terms
- Novated Lease
- A three-way agreement between you, your employer, and a finance provider where the employer pays for a car lease and running costs out of your pre-tax salary.
- ATO Statutory Residual
- The minimum balloon value the ATO mandates at the end of a novated lease, set as a percentage of the car's original price and falling with the lease term.
- Employee Contribution Method (ECM)
- Paying a portion of the novated lease cost from after-tax income to reduce the fringe benefits tax the provider would otherwise pass on to you.
Frequently Asked Questions
Everything you need to know about this topic.
Ivy Sinclair-Wren
Financial Chaos Analyst
Ivy Sinclair-Wren is a Financial Chaos Analyst covering investing, AI, wealth psychology, and the emotional consequences of opening finance apps during market crashes. Based in Melbourne, she specializes in demystifying the Australian tax code and helping users navigate the intersection of spreadsheet logic and human irrationality.