As financial planners, we are committed to helping our clients make smarter decisions about their money. One way we help clients save on their next vehicle is by leveraging Fringe Benefits Tax (FBT) exemptions on electric vehicles (EVs) and novated leasing. In this blog post, we’ll break down the benefits, the latest updates, and what to keep in mind before making a decision.
What are the FBT exemptions for electric vehicles
A fringe benefit is a ‘payment’ to an employee in a form other than salary or wages. FBT is a 47% tax on the taxable value of fringe benefits provided to employees, including personal use of a work car.
Since 1 July 2022, employers do not pay FBT on eligible electric cars and associated car expenses. This exemption applies if the vehicle meets the following conditions:
- The car is a zero or low emissions vehicle, such as a battery electric vehicle (BEV), hydrogen fuel cell electric vehicle (FCEV), or plug-in hybrid electric vehicle (PHEV) (until 31 March 2025).
- The car is below the luxury car tax (LCT) threshold (currently $91,387 for 2024/25 for fuel-efficient vehicles).
- The car is first held and used after 1 July 2022.
- The benefit is provided under a salary packaging arrangement (such as a novated lease).
This exemption offers significant tax savings for both employees and employers.
What is novated leasing?
Novated leasing is an arrangement between an employer, an employee, and a leasing company where the lease payments for a vehicle are deducted from the employee’s pre-tax income. This can lead to substantial tax savings and is a popular option for financing a new vehicle. The FBT exemption only applies to EVs acquired via a novated lease. If you pay cash or take out a standard loan, you do not qualify for the tax benefit. Employers must agree to process novated lease deductions through their payroll system, but they bear no financial cost.
Benefits for employees and employers of novated leasing
For employees, novated leasing reduces taxable income through pre-tax salary deductions, resulting in significant savings. No FBT is payable on eligible EVs, and running costs may be lower due to government incentives and reduced fuel and maintenance expenses. For employers, offering electric vehicles as part of salary packaging helps attract and retain top talent while supporting environmentally friendly initiatives and minimising tax obligations.
How novated leasing and FBT exemptions save money
Our client Sarah, a Sydney-based employee earning $145,000 per year, wants to buy a Tesla Model Y valued at $65,000.
We helped her consider two options:
- Paying outright with after-tax savings
- Using a novated lease with the FBT exemption through her employer’s salary packaging program
Annual salary and tax breakdown
| Scenario | Buying outright | Novated lease (FBT exempt) |
| Salary | $145,000 | $145,000 |
| Lease cost | NA | 15,348 |
| Pre-tax salary after lease | $145,000 | $129,652 |
| Tax | $37,888 | $32,276 |
| Net salary | $107,112 | $97,376 |
| Running costs (annual) | $4,500 | Included |
| Net salary after costs | $102,612 | $97,376 |
Total cost over 5 years
| Scenario | Buying outright | Novated lease (FBT exempt) |
| Upfront car cost | $65,000 | NA |
| Lease payments (5 years) | NA | $48,680 |
| Running costs (5 years) | $22,500 | Included |
| Balloon payment | NA | $16,622 |
| Total 5 year cost | $87,500 | $65,302 |
| Total savings | $22,198 |
Assumptions: Finance rate of 6% with a 28% balloon payment and $4,500 annual running costs included in the lease.
The savings
By choosing a novated lease, Sarah saved $22,198 over five years compared to buying outright. This significant saving gives her extra funds to invest or use towards other financial goals.
You can also consider the opportunity cost of using cash or a mortgage to buy the vehicle outright. If you withdrew funds from a mortgage, you’d be paying interest on that amount over time. Alternatively, if you had the cash available and chose to use it for the purchase, you’d miss out on potential investment returns — such as earning 4% interest over five years.
Risks and considerations of novated leasing
While FBT exemptions and novated leasing offer attractive savings, there are a few things to consider:
- Interest rate changes: If interest rates rise, lease payments could increase, affecting affordability.
- EV availability and infrastructure: Some EV models have long wait times, and charging infrastructure varies by location.
- Higher upfront cost: EVs generally have a higher purchase price than petrol vehicles, though this may be offset by lower running costs and government incentives.
- Depreciation risks: Resale values of EVs are still evolving as the market grows.
- PHEV exemption ending soon: If you’re considering a PHEV, you need to act before 31 March 2025 to lock in the tax benefits.
- Tied to employment: A novated lease is linked to your employment, so a job change could impact your lease agreement.
Upcoming change: FBT exemption for PHEVs ends soon
The Australian government is removing the FBT exemption for plug-in hybrid electric vehicles (PHEVs) from 1 April 2025 as part of a broader effort to encourage the adoption of fully electric and hydrogen fuel cell vehicles. This means PHEVs will no longer qualify for the same tax benefits as fully electric vehicles.
New leases for PHEVs signed from 1 April 2025 onwards will not be eligible for the exemption. However, existing PHEV leases signed before 31 March 2025 will remain exempt until the lease term ends, though changes to the lease (such as refinancing) may affect eligibility.
If you’re considering a PHEV, you should act before 31 March 2025 to secure tax savings under the current exemption.
Is this the right opportunity for me?
The FBT exemption on electric vehicles and novated leasing currently provides an opportunity for employees to save money while promoting sustainable transport options. If you’d like to learn more about novated leasing and how it can work for you, get in touch with our team of financial advisers and accountants.
Parker is passionate about helping clients kick their financial goals and live a great life. Read his full bio here.
