Is it time to review your novated lease options?
A new financial year is a practical time to review regular household expenses, especially the ones that can quietly add up over time. For many Australians, car costs sit high on that list, with finance repayments, fuel or charging, insurance, servicing, registration and tyres often managed as individual expenses throughout the year.
Once the end-of-financial-year rush has passed, July offers a useful reset point to look at where your money is going and whether your current car arrangement still suits your needs. By reviewing transport costs early, you can explore whether a more structured option, such as a novated lease, could better suit your budget for the year ahead.
Car expenses are easy to underestimate because they do not always arrive at the same time. A loan repayment may be predictable, but annual registration, insurance renewals, servicing and unexpected repairs can make the true cost of running a car harder to track. Asking questions now, like whether your current car still suits your lifestyle or whether your running costs are increasing, can give you a clearer picture of where your money is going. This can help shift your approach from reacting to bills as they arrive to planning for them across the year.
Taking stock in July also gives you time to compare your options without the pressure of a last-minute tax deadline. For some drivers, keeping their current vehicle may still be the right choice. For others, changing to a newer petrol, hybrid or electric vehicle (EV) could better match their commuting habits, family needs or budget goals. Rather than waiting for a major repair or renewal cost to force a decision, the start of the financial year can be a useful time to consider whether a different approach to car expenses could make ownership easier to manage.
Instead of managing multiple separate bills throughout the year, novated leasing offers drivers a more predictable way to manage the total cost of running their vehicle. A novated lease can simplify vehicle ownership by combining the finance payment and ongoing running expenses into one regular payroll deduction. Operating as a three-way agreement between the employee, employer, and novated lease provider, this structure can bundle costs such as fuel or charging, insurance, registration, servicing, and tyres.
The primary financial advantage of this arrangement is in how these costs are paid. Rather than covering car expenses entirely from after-tax income, eligible employees may be able to use a portion of their pre-tax salary to fund the lease and running costs. This can reduce taxable income and may improve overall take-home pay, depending on personal circumstances, vehicle choice, lease terms, and applicable tax rules.
EVs continue to be an important consideration for employees exploring novated leasing, particularly because of the current fringe benefits tax (FBT) exemption for eligible vehicles. Employers do not need to pay FBT on eligible EVs and associated expenses, provided the vehicle meets key conditions: it must be an eligible zero or low-emissions vehicle, first held and used on or after 1 July 2022, and priced below the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles. Plug-in hybrid electric vehicles (PHEVs) generally ceased to qualify for this exemption from 1 April 2025. These criteria have helped make EV novated leases an attractive option for many drivers.
However, the FBT exemption is changing. Under the 2026–27 Federal Budget, electric cars costing up to $75,000 will continue to receive the full FBT exemption, provided the arrangement starts before 1 April 2029. For eligible EVs over $75,000 but under the LCT, the Government will transition the current exemption to a 25 per cent FBT discount from 1 April 2027. Read more about the changes to the FBT exemption in our article, Federal Budget: Proposed EV tax changes explained.
For employees considering an EV through a novated lease, these changes make timing an important part of the decision. Starting an eligible lease before the relevant cut-off dates may allow employees to access the current, more favourable FBT exemption. This could help reduce the overall cost of leasing an EV and support better take-home pay outcomes, depending on the vehicle selected, the lease structure, and the employee’s financial circumstances.
Starting the new financial year with a clearer car budget can be a simple but useful way to reduce pressure on household cash flow. Whether you are considering a petrol vehicle, a hybrid or an EV, understanding the total cost of driving can help you make a more informed decision.
At Prosperity Smart Drive, we help clients navigate this evolving landscape with clarity and confidence. Get in touch with our team to understand how these proposed changes impact your specific situation and to structure a lease that maximises your available benefits.