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What Is a Car Allowance?

A cash payment made to employees as part of their salary package to cover the costs of using their own vehicle for work purposes.

 

  • Paid as part of salary, taxed at marginal rate
  • Employee owns or leases car, handles all running costs
  • Allows full flexibility but no pre-tax benefits

 

See how car allowances are taxed

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What Is a Novated Lease?

A three-way agreement between an employee, employer, and 
finance provider that allows pre-tax salary packaging of a vehicle.

 

  • Reduce your FBT by claiming the business use for the vehicle
  • Lease payments come from pre-tax salary (reducing taxable income)
  • Include your running costs as part of your pre-tax payment

 

Learn about salary packaging

Tax Savings for Novated Lease vs Car Allowance

Take Home Pay

Annual Tax Paid

Savings Compared to Car Allowance

Car Allowance

Salary: $100,000 + $20,000 car allowanceTaxable income: $120,000Car repayments and running costs 
per year: $20,000

$70,812

$29,188.00

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Novated Lease – EV (FBT Exempt)

Taxable income $120,000 (pre-tax 
not including super)Novated Lease with $20,000 per year in pre-tax payments (incl all running costs)

$77,212.00

$22,788.00

$6,400 per year

Novated Lease – Petrol/
Diesel/Hybrid Vehicle with 
90% Business Use

Taxable income $120,000 (pre-tax not including super)Novated Lease with $17,800 pre-tax and $2,200 post-tax payments per year 
(incl all running costs)

$76,540.59

$23,488.50

$5,699.50 per year

Novated Lease – Petrol/
Diesel/Hybrid Vehicle with 
0% Business Use

Taxable income $120,000 
(pre-tax not including super)Novated Lease with $3,800 pre-tax and $16,200 post-tax payments per year 
(incl all running costs)

$72,036.26

$27,992.83

$1,195.17 per year

Tax Savings for Novated 
Lease vs Car Allowance

Car Allowance

Salary: $100,000 + $20,000 car allowance

Taxable income: $120,000

Car repayments and running costs per year: $20,000

Take Home Pay$70,812
Annual Tax Paid$29,188.00
Novated Lease – EV (FBT Exempt)

Taxable income $120,000 (pre-tax not including super)

Novated Lease with $20,000 per year in pre-tax payments (incl all running costs)

Take Home Pay$77,212.00
Annual Tax Paid$22,788.00
Savings vs Car Allowance$5,699.50 per year
Novated Lease – Petrol/Diesel/Hybrid Vehicle with 90% Business Use

Taxable income $120,000 (pre-tax not including super)

Novated Lease with $17,800 pre-tax and $2,200 post-tax payments per year (incl all running costs)

Take Home Pay$76,540.59
Annual Tax Paid$23,488.50
Savings vs Car Allowance$5,699.50 per year
Novated Lease – Petrol/Diesel/Hybrid Vehicle with 0% Business Use

Taxable income $120,000 (pre-tax not including super)

Novated Lease with $3,800 pre-tax and $16,200 post-tax payments per year (incl all running costs)

Take Home Pay$72,036.26
Annual Tax Paid$27,992.83
Savings vs Car Allowance$1,195.17 per year

Why Businesses Are Switching from Company Cars to Novated Leases & Allowances

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Reduced Capital Exposure

Remove depreciating vehicles from your balance sheet to reduce risk & improve cash flow.

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Tax & Payroll Advantages

Potential FBT and payroll-tax reductions through structured salary packaging.

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Simplified Management

Lower admin and maintenance effort — no need to manage fuel, insurance or disposal.

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Employee Retention

Offer vehicle choice and flexibility as part of your 
benefits package.

Discover Employer Savings

Eligibility & Practical Considerations

For Employers For Employees
Employer Requirements
  • Enable salary-packaging capability
  • Define vehicle eligibility and policy
  • Understand FBT treatment
  • Automate lease payments via payroll
  • Use approved lease providers
  • Set clear policies for employees
  • HR & payroll lease training
  • Review insurance requirements
  • Manage transitions & lease transfers

What Our Customers Say

"Transitioning our team from company cars to novated leases has been a game-changer. We’ve reduced admin time, improved cash flow, and staff love choosing their own vehicles."

Sarah Thompson

"I had a great experience with WhipSmart Novated Leasing and very happy with the outcome even though I am located in VIC. 
I received a very competitive rate, the novated leasing process was handled smoothly and efficiently."

Anura S

"We’ve saved thousands in fleet maintenance and FBT since switching to a novated lease model. The process was seamless, and employees appreciate the transparency."

Lisa Grant

"Transitioning our team from company cars to novated leases has been a game-changer. We’ve reduced admin time, improved cash flow, and staff love choosing their own vehicles."

Sarah Thompson

"I had a great experience with WhipSmart Novated Leasing and very happy with the outcome even though I am located in VIC. 
I received a very competitive rate, the novated leasing process was handled smoothly and efficiently."

Anura S

"We’ve saved thousands in fleet maintenance and FBT since switching to a novated lease model. The process was seamless, and employees appreciate the transparency."

Lisa Grant

Frequently Asked Questions

Have a specific question?

How does the residual payment work in a novated lease?

At the end of your novated lease, you can pay the residual to keep the vehicle, refinance it into a new lease, or return the car and upgrade. The residual is a 
set amount determined by the ATO based on the lease term.

Can I transfer a novated lease if I change employers?

Yes! Your new employer may take over the lease, but they must agree to it.

How is depreciation treated for each option?

EV’s depreciate like any other car, but the advantage of a novated lease is that the depreciation is built into the regular lease payments, meaning you are only paying for the portion of the car you actually use.

Does an EV affect depreciation and tax outcomes?

Eligible EV’s can access the Electric Car Discount, removing FBT for employees using salary packaging.

How does FBT apply to novated leases?

FBT applies because a novated lease is considered a car fringe benefit provided by an employer.However, employers usually reduce or eliminate FBT by using the Employee Contribution Method, where you make post tax contributions from your salary. This is why most novated leases end up FBT free for the employer while still giving you the tax benefits of salary packaging.

Which model affects my borrowing capacity more?

Lenders will often assume a car allowance to be part of your income and that you will spend much of it on a car.

Whilst, a novated lease is a fixed, known cost, and so will have less impact on your borrowing power.