Novated Lease FBT and the Electric Vehicle Exemption

Fringe benefits tax is the reason a novated lease on a petrol car saves less than the brochure implies, and the reason a novated lease on an electric car saves more. This page sets out the mechanics for the FBT year from 1 April 2026, using a $50,000 car as the running example.

How FBT applies to a novated car

When your employer provides a car you can use privately, it is a car fringe benefit. Almost every novated lease uses the statutory formula to value it: the taxable value is 20% of the car's base value (its cost including GST, excluding registration and stamp duty), regardless of how many kilometres you drive or how much is private. On a $50,000 car the taxable value is $10,000 a year.

If nothing else happened, the employer would gross that up by 2.0802 (the type 1 factor, because it claimed GST on the car) and pay FBT at 47%: $10,000 becomes $9,777 of FBT a year, which employers pass straight into the package. That would wipe out the tax saving on most cars, which is why it almost never happens.

The Employee Contribution Method

An employee contribution made from after-tax income towards the car reduces the taxable value dollar for dollar. Pay $10,000 post-tax over the year and the taxable value is zero: no FBT. Providers split your package into two lines for this reason: a pre-tax deduction for the balance of the lease and running costs, and a post-tax deduction equal to 20% of the car's value. The contribution is treated as income of the employer and attracts GST, which the employer remits.

The effect is that on a non-exempt car, the tax saving applies only to the part of the package above 20% of the car's value. On a cheap car with high running costs that is most of the package; on an expensive car with low running costs it is very little, which is why the saving on a $75,000 petrol car can be smaller than on a $35,000 one. The calculator shows the split.

The electric vehicle exemption

Since 1 July 2022, an eligible zero or low emissions car provided to an employee is exempt from FBT, and the exemption extends to the associated running costs. On a novated lease that means the entire package comes out of pre-tax salary with no employee contribution. Eligibility, as the ATO applies it:

• The car is a battery electric or hydrogen fuel cell vehicle (plug-in hybrids only for commitments entered before 1 April 2025).
• It was first held and used on or after 1 July 2022, by anyone. A second-hand EV first driven in 2021 can never qualify; one first sold in 2023 can.
• Luxury car tax has never been payable on it, which in practice means its value was at or below the fuel-efficient LCT threshold when first sold: $91,661 for 2026-27.
• It is a car under FBT law: designed to carry fewer than nine passengers and a load under one tonne. Electric utes over one tonne payload are not cars and follow different rules.

The saving is large. On a $95,000 salary and a $58,000 EV, an exempt lease typically beats buying by several thousand dollars a year; the same money on a petrol car saves a fraction of that. It is the reason EVs are now the majority of new novated leases in Australia.

What changes on 1 April 2027 and 1 April 2029

The 2026-27 Budget replaces the open-ended exemption with a permanent, smaller discount. For a lease that starts before 1 April 2027 nothing changes. After that, the price of the car and the start date decide the treatment, and the treatment in place at the start stays for the life of the arrangement. The 1 April 2027 page has the table and worked examples, and the calculator lets you pick the start date.

Plug-in hybrids: what changed on 1 April 2025

PHEVs were included in the exemption from 2022 to 31 March 2025. From 1 April 2025 a plug-in hybrid is not a zero or low emissions vehicle for FBT purposes and new leases are not exempt. A PHEV keeps its exemption only if its use was already exempt before 1 April 2025 and there was a financially binding commitment made before that date to keep providing it; an optional extension exercised after 1 April 2025 breaks the chain. The ATO has no discretion to extend the date for late deliveries.

Reportable fringe benefits: the catch on exempt EVs

Exempt does not mean invisible. The ATO requires the value of an exempt electric car benefit to be included in your reportable fringe benefits amount, grossed up at the type 2 factor of 1.8868. On the $50,000 example that is about $18,868 shown on your income statement. It is not taxed, but it is added to your income for:

• HELP/HECS repayments: repayment income includes reportable fringe benefits. With the 2026-27 minimum threshold at $69,528, an EV lease can push someone from no repayment into one, or up a band.
• Medicare levy surcharge thresholds.
• Child support assessments and some family assistance payments.

For most people the effect is small relative to the saving. For a graduate on $65,000 with a large HELP debt it is worth modelling; the calculator shows the reportable amount so you can check it against the HELP tables.

Luxury cars and the car limit

Two thresholds matter and they are often confused. The LCT threshold ($91,661 fuel-efficient, $80,809 other) decides whether luxury car tax was payable, and for EVs whether the exemption applies. The car limit ($69,883 in 2026-27) caps the GST credit your employer can claim at $6,353 and the depreciation it can deduct. A $85,000 EV is below the LCT threshold and exempt from FBT, but the GST saving passed to you is capped at the car-limit amount, not the full $7,727.

Frequently asked questions