What Is a Lease?
A lease is a finance arrangement where you pay for the use of an asset – typically a vehicle or equipment – over an agreed term, without necessarily owning it at the end. Lease structures vary, but the key financial characteristics common to most arrangements are:
- Regular periodic payments (monthly, fortnightly) over a fixed term
- A residual value (also called a balloon payment) at the end of the term, representing the estimated remaining value of the asset
- No large upfront capital outlay – the deposit or establishment cost is generally modest compared to an outright purchase
How the Calculator Works
Enter the following:
- Asset value (the purchase price of the vehicle or equipment)
- Lease term (typically two to five years)
- Residual value or balloon payment at the end of the term
- Annual interest rate on the lease
- Any upfront fees or deposit
The calculator outputs your regular lease repayment, the total amount paid over the term, and the cost of taking up the residual to own the asset outright at the end.
Vehicle Leasing in Perth: Key Options
Perth borrowers typically encounter vehicle finance through one of three structures:
| Structure | Ownership | Tax Treatment | Best Suited To |
| Novated lease | Employer holds during term; employee can buy at residual | Pre-tax salary payments; FBT may apply | PAYG employees with employer participation |
| Finance lease | Lessee has use; lessor retains title | Business can claim depreciation and interest | Businesses with ABN |
| Chattel mortgage | Borrower owns asset from day one | Business can claim GST upfront | Self-employed; business vehicle purchase |
| Car loan (secured) | Borrower owns asset | Standard interest deductibility rules | Personal vehicles; consumer lending |
Novated Leasing: The Tax Advantage Worth Modelling
For Perth employees whose employer participates in a salary packaging arrangement, a novated lease can be significantly more cost-effective than a standard car loan. Lease payments are deducted from pre-tax salary, reducing taxable income. For an employee in the 30% marginal tax bracket packaging $15,000 annually in lease costs, the tax saving is approximately $4,500 per year – or $18,000 over a four-year lease term.
The tax advantage is even more pronounced for eligible electric vehicles. Under ATO rules, EVs leased under a novated arrangement that meet the Fringe Benefits Tax exemption criteria – broadly, new battery electric vehicles below the luxury car tax threshold of $91,387 for 2025–26 – attract no FBT at all. This means the entire lease cost is funded from pre-tax dollars. Note that plug-in hybrid vehicles lost FBT exemption eligibility for new arrangements from 1 April 2025.
For a taxpayer on $120,000 – sitting in the 37% marginal bracket – packaging a $15,000 annual lease cost saves approximately $5,550 in income tax per year. Over a four-year term, that represents a potential tax saving above $22,000 before any running cost benefits are considered.
The Residual Value Decision
At the end of a lease term, the borrower typically has three choices:
- Pay the residual to take full ownership of the asset
- Refinance the residual into a new loan if the asset is worth retaining
- Return or trade the asset and enter a new lease on a replacement
The residual amount is set at the beginning of the lease based on the asset’s expected remaining value. If the asset has depreciated faster than expected – or has been driven more than the lease’s agreed kilometre limit – the residual may exceed the asset’s market value at lease end, creating a shortfall.
For Perth borrowers leasing a vehicle with high annual kilometres – common in outer suburban areas like Mandurah, Rockingham, and the Swan Valley corridor – it’s worth negotiating the kilometre limit carefully at the outset to avoid excess kilometre charges.
Lease vs Car Loan: A Simple Comparison
| Feature | Novated / Finance Lease | Standard Car Loan |
| Upfront cost | Low – modest deposit or none | Low – typically 10–20% |
| Monthly repayment | Lower (excludes residual) | Higher (repays full amount) |
| Ownership at term end | Conditional on paying residual | Automatic – full ownership |
| Tax advantage | Yes (for novated / business leases) | Limited (business use only) |
| Flexibility | Lower – tied to term and residual | Higher – extra repayments freely permitted |
Leasing, Asset Finance, and Business Borrowers
Perth businesses leasing equipment, vehicles, or plant through a finance lease or chattel mortgage structure have access to specific tax treatments under ATO rules. For businesses exploring these options, Asset Finance through Central Lending Solutions provides access to a range of lender options across equipment, vehicles, and commercial assets.
For personal vehicle leases linked to a home purchase or broader financial plan, it’s worth noting that novated lease commitments are treated as committed monthly expenses in a home loan serviceability assessment – so timing a novated lease relative to a home loan application is worth discussing with a broker.
Frequently Asked Questions
1. Does a novated lease affect my home loan borrowing power?
Yes. Lenders include the regular lease repayment (net of tax saving) as a committed expense when assessing serviceability. If you’re planning to apply for a home loan, it’s worth understanding whether starting a novated lease beforehand will materially reduce your borrowing capacity.
2. What happens if I leave my employer during a novated lease?
The lease becomes your personal responsibility. Most novated lease providers offer a period to either transfer the arrangement to a new employer or convert to a personal car loan. Check the termination provisions before signing.
3. What is the difference between a finance lease and a novated lease?
A finance lease is typically used by businesses – the business makes payments and the lessor retains title. A novated lease involves the employer, the employee, and the leasing company in a three-way arrangement where the employer makes the payments from the employee’s salary.
4. Is leasing always cheaper than buying?
Not necessarily. Leasing provides lower monthly payments and potential tax advantages but typically costs more in total over the life of the asset. The answer depends on your tax position, the asset’s depreciation rate, and how long you intend to hold the vehicle.
5. Can I include running costs in a novated lease?
Yes. A fully maintained novated lease typically bundles fuel or charging, registration, insurance, servicing, and tyres into the regular lease payment – all deducted from pre-tax salary. This simplifies budgeting and maximises the pre-tax benefit.
Talk to a Perth Finance Broker About Your Options
Vehicle and equipment leasing decisions interact with your broader financial position – particularly if you’re also planning a home purchase or refinance. Central Lending Solutions helps Perth borrowers and businesses structure finance arrangements across vehicles, equipment, and property to work together effectively. Call (08) 9201 8570 or visit our Asset Finance and Car Loans pages for more detail.