Quick answer: Salary sacrifice is the broad idea of paying for something from your pre-tax salary. A novated lease is one specific type of salary sacrifice — it’s how you salary-sacrifice a car. So they’re not really rivals: a novated lease is salary sacrifice applied to a vehicle. The real question is usually whether a novated lease is the right way to package your car versus a regular car loan, and whether the tax and FBT treatment stacks up for your situation.
What is salary sacrifice?
Salary sacrifice (also called salary packaging) is an arrangement with your employer where part of your pre-tax salary pays for an agreed benefit — superannuation, a laptop, or a car — before income tax is calculated. Because it comes out of pre-tax income, it can lower your taxable income. What you can package depends on your employer and the type of benefit.
What is a novated lease?
A novated lease is a three-way agreement between you, your employer and a lease provider. Your employer deducts the lease and running costs from your pre-tax (and sometimes post-tax) salary and pays the provider. It’s the mechanism that lets you salary-sacrifice a car — including the finance and often fuel, servicing, tyres, rego and insurance bundled into one deduction.
So how are they different?
The simplest way to hold it:
- Salary sacrifice = the general concept of paying for a benefit from pre-tax salary.
- Novated lease = the specific product that applies salary sacrifice to a car.
When people ask “novated lease vs salary sacrifice”, they usually mean one of two things: (a) can I salary-sacrifice a car without a novated lease (generally no — the novated lease is the vehicle for it), or (b) is a novated lease better than just taking out a car loan? That second question is the useful one.
The tax and FBT angle
Because a novated lease uses pre-tax salary, it can reduce your taxable income — but it also brings Fringe Benefits Tax (FBT) into play. For eligible low- and zero-emission vehicles under the threshold, the FBT exemption can make the numbers particularly attractive. FBT and salary-packaging rules are detailed and depend on your income, employer and the car, so treat this as general information and confirm your position with your accountant or a salary-packaging specialist.
Novated lease vs a car loan
If you don’t have access to salary packaging — or you’d rather own the car outright with fewer conditions — a straightforward car loan may suit you better. We compare the two in detail in novated lease vs car loan, and if you’re looking at an EV, see electric car novated leases in Australia. Buying through a business instead? A business car loan opens up other structures.
How Alpha390 can help
Alpha390 arranges car finance across a panel of lenders and can point you to the right structure for your situation. Novated leasing is facilitated through a specialist partner, while we handle your car finance options directly. Tell us how you want to package your car and we’ll help you compare.
Frequently asked questions
Is a novated lease the same as salary sacrifice?
A novated lease is a type of salary sacrifice — specifically, salary sacrificing a car. Salary sacrifice is the broader concept that also covers things like extra super. So a novated lease is one way to salary-sacrifice, not a separate alternative to it.
Can I salary sacrifice a car without a novated lease?
Generally no. For most employees the novated lease is the mechanism that makes salary sacrificing a car possible. Your employer needs to offer novated leasing for it to work.
Does a novated lease save tax?
It can, because payments come from pre-tax salary, but Fringe Benefits Tax applies and the benefit depends on your income, the car and your employer’s arrangement. Eligible EVs may qualify for an FBT exemption. Confirm the numbers with your accountant.
What happens to my novated lease if I change jobs?
The lease is yours — it can usually be transferred (re-novated) to a new employer who offers novated leasing, or you continue the payments yourself in the meantime. Check the specific terms with your lease provider.
Is a novated lease better than a car loan?
It depends on whether you have salary packaging, your marginal tax rate, and the car. A novated lease can bundle running costs and use pre-tax income; a car loan is simpler and leaves you owning the car outright. Comparing both for your situation is the best way to decide.
Want help comparing? Apply online or send an enquiry and the Alpha390 team will help you weigh a novated lease against a car loan for your circumstances.
This article is general information only and does not constitute credit, financial or tax advice. Novated leasing is facilitated through a specialist partner. Alpha390 Finance operates under Australian Credit Licence 506065 (Five Tees Pty Ltd). Lending is subject to approval, lending criteria, terms, conditions and fees. FBT and salary-packaging outcomes depend on your circumstances — confirm with a qualified adviser.
Written and reviewed by the Finance Director at Alpha390 Finance.
