New tech-driven perk set to revolutionize the Australian benefits landscape
This article was created in partnership with Auto-UX.
Novated leasing has been a fixture in Australian employment benefits for decades - but it’s the electric vehicle (EV) revolution that’s breathing new life into this long-established model.
Someone who understands this better than most is Greg Parkes, CEO of Auto-UX, who believes novated leasing is now both a financial game-changer for employees and employers, as well as a tool for achieving national emissions reduction targets.
“Novated leasing is an amazing employee benefit,” Parkes told HRD. “It's not a new benefit. It's been around for almost 40 years, but continues to deliver significant value for both employees and employers.”
At its core, novated leasing allows full-time employees to bundle nearly every cost associated with owning a car, from loan repayments to fuel, servicing, tyres, registration, and insurance, all into a single monthly payment deducted from their salary. But the true appeal, Parkes revealed, lies in the tax advantages.
“The employer pays us, but then they recover that money from the employee’s salary – and this is where the magic happens,” he told HRD. “Because the employer recovers as much of that periodic expense from the employee's pre-tax salary as possible.”
The result? Significant savings for the employee through GST savings, reduced taxable income, and lower income tax liabilities.
“For many employees, it will be the most cost-effective way for them to buy and run a personal vehicle,” Parkes added. “It also solves this life admin problem - those costs can be really lumpy, but not with a novated lease. It’s great from a cash flow perspective.”
And the benefit isn’t limited to employees. “There’s no cost to provide this benefit to employees - meaning no fees for employers,” Parkes told HRD. “It's a powerful attraction and retention tool, and it essentially enables them to give their employees a pay rise that the business doesn't pay for. It also reduces the company’s payroll tax liabilities. It’s a no brainer.”
Electric vehicles supercharging the model
While novated leasing has long helped Australians drive petrol and diesel cars more cost-effectively, a legislative change in July 2022 dramatically shifted the approach. The Australian Federal Government brought in new legislation making electric vehicles 100% FBT-free.
“That means, from an employee’s perspective, they get basically double the tax benefit on a battery electric car than they would on a combustion engine car.”
The intention here is to drive first-time EV adoption by lowering the cost barrier - and it’s working.
“Last financial year, ending on 30 June, the number of battery electric cars sold in Australia out of all new car sales was just under 10%,” Parkes added. “However, 36% of novated lease sales were electric vehicles. And on our platform 58% of the cars on novated leases were an electric vehicle.
“Moving into an electric vehicle for the first time is a real paradigm shift for most people. It’s a totally different concept. And this piece of legislation makes the financial incentive to take that leap much easier.”
Quantifying the savings
The numbers tell a compelling story. Parkes outlines two illustrative scenarios - one for a petrol vehicle and one for an EV.
“Take for example the Toyota RAV4. This is a petrol car driving 15,000 kilometres per year on a five-year lease, with the employee having a salary of $140,000. They would save just under $3,500 per year by salary packaging the petrol car. Employees have several ways they might finance a car, but I think if you ask any employee, would you like the cost of that car to be $3,500 cheaper per year - I think most people are pretty excited about that.”
Compare that to the savings on a similar priced EV. “The example we've got here is a BYD Sealion 7 - same five-year term, same salary, same kilometres per year - this car on a novated lease, you will be saving $7,500 per year. It’s about $100 per week cheaper after-tax. It’s just an incredible tool to get someone to purchase their first battery electric car.”
Employers take notice
With such clear employee benefits, savvy employers are paying close attention and they’re seeing direct advantages as well.
“The EV incentive accelerates payroll tax savings for employers in two ways. Firstly, with an EV the employee is sacrificing more salary pre-tax than they would with a petrol car, which reduces the taxable wages base more aggressively. Secondly, businesses are getting greater adoption of novated leasing because of EV uptake, further compounding the benefits for employers.”
Before EV incentives, employers might achieve 5–10% of staff opting in. Now, Parkes told HRD, adoption might reach 15–20%, or even higher.
“Obviously that increases the company’s overall payroll tax savings. So it’s a really great opportunity. And remember, the legislation is due for review mid-2027 - so we don’t exactly know what will happen after that time. What is guaranteed is that, between now and mid-2027, businesses should be promoting this.”
Environmental impact: A national imperative
With Australia targeting a 43% reduction in emissions from 2005 levels by 2030, novated leasing may prove vital to helping the country meet its climate goals.
“The average carbon output per vehicle in Australia is about 4.6 tonnes per year,” added Parkes. “If we’re moving someone from 4.6 tonnes to zero tonnes obviously that's a very significant impact.”
Transport accounts for 19% of Australia’s total emissions. To meet its climate commitments, at least 73% of new car sales need to be zero-emission by 2030, according to the Climateworks Centre.
“That is definitely not possible without aggressive EV uptake,” Parkes explained. “Australia really does risk missing its climate targets or having to offset emissions in more costlier ways if we can't get this EV piece right.”
Which is why Auto-UX and others in the sector are watching the 2027 review closely.
“We think that [the EV tax incentive] will need to be extended if we’re to have any chance of achieving these targets - and obviously we’d be very supportive of that.”
Find out how you can reward your employees through novated leasing with Auto-UX.
