Luxury Car Lease

Leasing a luxury car is a cost-efficient, tax-effective way to drive a better vehicle.

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, updated on June 30th, 2023       

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Luxury car lease

Luxury car lease freedom and flexibility

Luxury car leases are the financing choice many Australians use when buying a prestige car. Car leases are a fixed-rate way for some employees, companies, and self-employed individuals to combine tax benefits with driving a luxury car. Although you get the option to buy the vehicle at the end of a luxury car lease, you can claim some or all of the regular payments as a business expense during the term – depending on the type of lease. Unlike with a personal car loan where only the interest portion is tax deductible, a lease allows you to deduct the entire repayment usually. Luxury car leases generally run between two and five years. When the term ends, you can pay the residual amount and own the car, refinance the residual and keep driving, or sell the vehicle and start another luxury car lease – making this form of finance a great option if you like to drive the latest prestige models.

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Luxury vehicle leases differ from car loans because you don’t own the vehicle during the finance term. Depending on several factors – like your tax and employment status, cash flow, and how often you plan to upgrade your car, there are a few different luxury vehicle lease options to choose from. There are prestige car lease options out there whether you’re employed full-time, a sole trader, and even if you run a small, medium, or larger sized business. Savvy helps Australian car buyers find their ideal form of finance because we deal with many of Australia’s top niche and wholesale car lease lenders – offering a broad range of car finance products, and we don’t have ties with any specific providers. That means we can make market-informed, independent decisions about your best way forward, based solely on your circumstances, and then quickly connect you with the ideal lender.

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Find the answer in Savvy’s luxury car lease faqs

What are the tax implications of leasing a luxury car?

For some leases and buyers, the whole of your lease payments get classed as a business expense. Your tax situation is probably the most significant influence on which luxury car lease is right for you – that’s why it’s essential to talk with an expert Savvy consultant about which lenders and products best meet your aims.

What is luxury car tax, and how does it work?

Whenever you buy a car that’s classed by the ATO as a luxury model, a special car tax will already be included in the marked price. That tax is the Luxury Car Tax (LCT). If you’re thinking about leasing an expensive car, it pays to know how this tax works. LCT kicks in when a vehicle’s value reaches a certain level, and the extra cost can be significant. There are a couple of different thresholds for LCT based on the fuel-efficiency a vehicle achieves. You’ll need to factor LCT into your car lease budget if you’ve been looking at vehicles that are close to or above the LCT threshold, and the ATO adjusts the limits for LCT each year.

  • Currently, cars that consume fewer than seven litres for every 100 kilometres travelled have a value threshold of $77,565.
  • All other luxury vehicles have a limit of $68,740.

Can I use the residual amount to lessen luxury car lease payments?

Unlike other forms of vehicle finance, where you can adjust the residual or balloon amount to reduce or increase repayments, with a lease, the residual amount gets governed by ATO depreciation rates. That’s because – if you don’t opt to buy a vehicle at the end of a luxury car lease term – lower payments during the agreement would see you gain an unfair tax advantage. The lessor might also lose out when they sell the car because the total of the repayments and the residual would add up to less than the vehicle’s value.


What about optional extras and the luxury car tax rate?

LCT gets applied to any custom modifications or upgrades once you’ve passed the threshold. The rate is currently 33% and it’s vital to take LCT into account when budgeting for any optional extras, because items like upgraded wheels, leather upholstery, or a high-end sound system can add up pretty quickly on a luxury car. You should also keep an eye on things if you start adding extras when the purchase price is just below the threshold too.

  • The thresholds for LCT cars get set according to the cost of a vehicle before LCT gets added.
  • Factors like customs duty and GST will get included in that assessment, but it excludes all other taxes.
  • The LCT thresholds aren’t exceptionally high, and as soon as the value of a vehicle reaches the limit, every dollar extra of your purchase will attract a luxury tax rate of 33%.

What are the GST implications of leasing a luxury car?

Products, businesses, individuals, and balance sheet requirements all vary, but you’ll nearly always make tax and GST savings by leasing a car. For instance, when the financier buys a vehicle, they get to claim GST back – and that saving usually gets passed on to you. In the case of a $100,000 car, GST alone amounts to more than $9,000.

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Luxury car finance lease

A luxury vehicle finance lease is an agreement between yourself and a finance provider. They buy the vehicle on your behalf, and rental payments get based on the vehicle’s value during the term, less a residual amount related to the buying price when the agreement ends. When that time arrives, you can choose to buy out the residual and own the vehicle, refinance the amount, or sell the car and get another lease.

How an operating lease works

With a luxury car operating lease, payments get based on the car’s depreciation amount during the term, and the lessor takes on all ownership and disposal risks. Servicing, registration, maintenance and details like breakdown cover are included in the payments you make, so an operating lease is a fully maintained solution which works more like a long-term car rental. Operating leases are ideal if you want all the benefits of a luxury car with little or no hassle. You just drive, and everything else is taken care of by your monthly payment.

Using a novated lease to buy a car

A novated lease for luxury cars is a three-way arrangement between your employer, you, and a salary packaging company. Not all employers offer novated leases, which are also known as salary sacrificed car agreements. You lease the vehicle using your pre-tax salary, so you make significant savings in terms of income tax. However, there are significant GST benefits with a novated lease too:

  • Because the lease company buys the car and then claims back the GST on the whole purchase price, they pass that saving on to you. On a $60,000 car, for example, that equates to an immediate reduction of more than $5400. When you’re a private individual, there just isn’t any other way you can buy a car GST-free, but with a novated lease, you can.
  • When you take on a fully maintained novated lease, servicing and maintenance get included in the cost of your regular payments and you can pay for some or all of that from your pre-tax wages too.

Chattel mortgage vehicle finance

If you use your car for business purposes, then a chattel mortgage could be a good finance lease alternative. That’s because, with a chattel mortgage, you own the car from the start of the finance agreement, unlike with a finance lease where the lease company owns the vehicle until you pay off the residual at the end of the term. That means the tax implications are different and might suit many business users:

  • You can claim all GST on the purchase price back when you lodge your next Business Activity Statement.
  • There is no GST on monthly repayments or when paying any residual amount at the end of your agreement.
  • You can claim for the interest portion of your regular repayments as a business expense.
  • You own the car from day one, so you can claim depreciation as per ATO guidelines.
  • Any tax you claim has to be in proportion to the amount of business use your vehicle gets. For instance, if you use the car for business 50% of the time, you’ll need to account for that in terms of both depreciation and interest on payments.


With a chattel mortgage, you get the option to manipulate regular repayment amounts by adjusting the residual value up and down – and you can’t do that with a lease. You also get the same options at the end of a chattel mortgage as with a finance lease – you can choose to pay off the residual and own the car outright, refinance the residual, or sell the vehicle and start again. Chattel mortgage versus Finance Lease is all about what works best for you and your business.

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