Novated leases and the EV FBT exemption, explained

A novated lease lets you pay for a car — and often its running costs — out of your pre-tax salary. On petrol cars the benefit is real but modest. On eligible electric vehicles, a standing FBT exemption turns it into one of the sharpest tax breaks available to an ordinary employee.

How a novated lease works

It's a three-way agreement between you, your employer and a finance company. Your employer deducts the lease payments from your salary before tax, lowering your taxable income, then passes them to the financier. Package the running costs too — fuel or charging, insurance, rego, servicing, tyres — and they come out pre-tax as well.

Why FBT usually claws it back — and why EVs don't

Normally, providing a car through salary packaging triggers Fringe Benefits Tax, which quietly eats much of the saving. The Electric Car Discount removes it: eligible EVs provided through a novated lease are exempt from FBT, so the pre-tax saving flows straight through. That's what makes an EV novated lease so much stronger than a petrol one.

What qualifies in 2025-26

To be exempt, the car must be a battery or hydrogen fuel-cell electric vehicle, first held and used on or after 1 July 2022, and priced below the luxury car tax threshold for fuel-efficient vehicles (around $91,000 for 2025-26). Note the shift: plug-in hybrids (PHEVs) lost eligibility from 1 April 2025 — an existing PHEV lease in place before that date can keep the exemption under transitional rules, but new ones can't.

The catches worth knowing

• Running costs are estimates. Packagers budget them; overspend and you top up from after-tax pay.
• The residual (balloon) payment. At lease end you owe a set percentage of the car's price — plan for it.
• It's still a car cost. Packaging a car you didn't need doesn't save money; it just makes a car you do need cheaper.
• Leaving your job means the lease novates back to you.

The take-home effect

For a high earner, an eligible EV can save several thousand dollars a year versus buying the same car with after-tax money — the exact figure depends on price, salary and running costs. Our salary sacrifice calculator shows what moving money pre-tax does to your pay, and the income tax calculator shows the marginal rate the saving is measured against. General information only — not financial advice.