In Australia, "car leasing" for individuals usually means a novated lease: a three-way agreement between you, your employer and a finance company, under which the lease payments and running costs come out of your salary, partly before tax. For employees in their fifties and early sixties, often on their highest salaries, the tax savings can be substantial, and battery electric cars currently attract a fringe benefits tax exemption that makes the numbers even more favourable.
The weakness of a novated lease for older workers is that it depends on having an employer. If you retire, are made redundant or reduce your hours mid-term, the arrangement changes and the tax benefit can disappear. Retirees cannot start a novated lease at all. This guide explains how to plan around that, and what retired Australians use instead.
How a novated lease works
Your employer agrees to make lease payments to the financier from your pay, and the package typically bundles fuel or charging, servicing, tyres, registration and insurance into one budget. Providers such as Maxxia and Smartleasing administer the arrangement. Terms usually run from one to five years. At the end you can pay the residual and keep the car, refinance the residual, or sell the car and start a new lease.
The residual is set by the ATO
The Australian Taxation Office publishes minimum residual values for leases, depending on the term. For a five-year lease the minimum is 28.13% of the car's cost, rising to 37.50% for four years and 46.88% for three years. That residual is a balloon you must deal with at the end, which matters greatly if the lease ends after you have retired.
The electric car FBT exemption
Battery electric and hydrogen fuel cell cars first held and used from 1 July 2022, priced below the luxury car tax threshold for fuel-efficient vehicles, are exempt from fringe benefits tax when provided through an employer. Smartleasing cites a threshold of $91,661 for the 2026-27 financial year. Plug-in hybrids lost the exemption from 1 April 2025, except under certain pre-existing arrangements, and the government has said it will review the exemption by mid-2027.
Reportable fringe benefits
Even when exempt, the benefit is reported on your income statement. Reportable fringe benefits can be counted in income tests for some government concessions and payments, so check the effect if you expect to apply for a card or benefit soon.
Novated lease, car loan or subscription?
| Option | Who can use it | Main advantage | Main drawback for over-55s |
|---|---|---|---|
| Novated lease | Employees whose employer offers it | Pre-tax payments; FBT exemption for eligible EVs | Tied to the job; residual due at the end |
| Car loan | Anyone who meets lending criteria | You own the car; no employer needed | Paid from after-tax income |
| Car subscription | Most adults; often no finance check | Short terms, all-inclusive, easy to stop | Higher cost per month than leasing |
| Chattel mortgage or finance lease | Self-employed with an ABN | Tax deductions for business use | Business-use records required |
| Consumer lease or rent-to-own | Consumers | Low entry cost | Often very expensive overall |
What happens if you retire mid-lease
When employment ends, the novation ends too. The lease reverts to you personally: you keep the car but must make the payments from after-tax income, without the salary packaging benefit. Your options are typically to keep paying, transfer the lease to a new employer if you take another job, sell the car and pay out the lease, or pay out the balance early, which may involve fees. Smartleasing lists these choices on its site; read your own provider's terms before signing.
Timing the lease to your retirement
The safest approach is to choose a term that ends no later than your planned retirement date. A 61-year-old planning to stop at 65 might pick a three- or four-year lease, not five. If the residual will fall after retirement, plan how you will pay it: from super once you meet a condition of release, from savings, or by selling the car.
Worked examples for older drivers
Sue, 57, nurse in Newcastle. Earning $110,000, she leases a $58,000 electric car over four years. Because it is FBT-exempt, her lease and running costs come entirely from pre-tax salary. The provider's quote shows her take-home pay falling by much less than the gross cost of the package. At 61 the ATO minimum residual of 37.50%, about $21,750, is due; she plans to pay it from savings and keep driving the car into retirement.
Rob, 63, public servant in Canberra. He plans to retire at 66 and is offered a five-year lease. He chooses a three-year term instead so the lease ends before he stops work, accepting a higher residual of 46.88% that he will refinance with a small car loan in retirement or settle by trading the car in.
Maureen, 69, retired in Adelaide. With no employer, a novated lease is not an option. She compares a $20,000 used car bought with a three-year loan against a car subscription. The subscription, with insurance and servicing included, costs more each month but can be cancelled after a minimum period, which suits her because she is unsure how long she will keep driving.
Frequent errors with car leasing after 55
- Signing a five-year novated lease two years before planned retirement.
- Forgetting the residual and having no plan to pay it.
- Assuming every plug-in hybrid is still FBT-exempt after April 2025.
- Comparing a lease quote with a loan without including running costs on both sides.
- Choosing a consumer lease or rent-to-own deal without calculating the total paid.
- Not asking the provider what happens on redundancy, which is more common late in a career than people expect.
Solutions for retirees and people leaving work
Once retired, a secured car loan from a bank or customer-owned lender is usually the cheapest way to finance a car you intend to keep. A car subscription offers flexibility at a premium and often needs no finance check. Smart's novated subscription, run with Karmo, starts from four months for those still employed. If you run a small business in retirement, a chattel mortgage may let you claim deductions for business use. Whatever you choose, if payments become hard, ask the provider for hardship help and contact the National Debt Helpline; disputes can go to AFCA.
Questions to put to a lease provider
Ask for a written quote showing the pre-tax and post-tax deductions, the residual, all fees, and the outcome if your employment ends in year two. A reputable provider will answer these clearly.
How to decide on a car lease after 55
- Confirm that your employer offers novated leasing and whether it covers used cars.
- Set the lease term so it ends before your intended retirement date.
- Check whether the car qualifies for the electric car FBT exemption on the ATO's criteria.
- Get quotes from two providers and compare total cost, residual and fees.
- Write down how you will pay the residual and what you will do if your job ends early.
- If you are already retired, compare a secured car loan with a subscription instead.
Leasing FAQ for Australians over 55
Can I take out a novated lease at 64? Yes, if your employer offers it. Age is not a barrier, but the term should fit the time you expect to remain employed.
Can a retiree get a novated lease? No. A novated lease needs an employer to make salary deductions. Retirees use car loans, subscriptions or, if self-employed, business finance.
What if I am made redundant during the lease? The lease reverts to you. You can continue the payments personally, move it to a new employer or pay it out, so keep some savings in reserve.
Is an electric car always cheaper on a novated lease? Usually, while the FBT exemption lasts, but the result depends on your tax rate, the car's price and running costs. Ask for a quote comparing it with a petrol car on the same terms.
Who regulates novated lease providers? The finance behind them falls under credit and financial services law supervised by ASIC, and complaints can be escalated to AFCA once the provider's own process is exhausted.
Organisations and offers to contact
- Smartleasing novated leasing : Novated leases on new, used and electric cars for one to five years, plus flexible novated subscriptions and options when your job changes.
- ATO: electric cars exemption : Official conditions for the fringe benefits tax exemption on eligible electric cars, including the plug-in hybrid change from April 2025.