Novated Lease + Electric Vehicle: The Complete Australian Tax Guide

What is a novated lease?

A novated lease is a three-way agreement between you (the employee), your employer, and a finance company. Your employer "novates" (takes on) the lease obligations and makes repayments from your pre-tax salary on your behalf.

The result: you effectively buy a car using pre-tax dollars, which reduces your taxable income. Normally, this creates a Fringe Benefits Tax (FBT) liability for your employer. But for eligible electric vehicles, the FBT is entirely exempt.

The FBT exemption for electric vehicles

Since 1 July 2022, cars that are battery electric vehicles (BEVs) or hydrogen fuel cell vehicles are eligible for a full FBT exemption, subject to two conditions:

• The car was first held and used on or after 1 July 2022 (not a second-hand pre-2022 EV)
• The car's value is below the luxury car tax (LCT) threshold for fuel-efficient vehicles — currently $91,387 for 2024–25

Which EVs qualify for 2024–25?

The vehicle must be a BEV, first held after 1 July 2022, and priced below $91,387 (drive-away prices may differ — the threshold applies to the car's value before on-road costs). Here are some popular examples:

How the savings work — real example

Let's say you earn $120,000/year and want to novate a BYD Atto 3 valued at $46,000 over 5 years.

These numbers are illustrative. Your actual savings depend on your income, the vehicle chosen, the lease term, running costs, and your employer's salary packaging arrangement. A novated lease provider will give you a personalised quote.

What's included in a novated lease package?

A well-structured novated lease bundles all car-related costs into your pre-tax salary package:

• Lease repayments (vehicle finance)
• Registration and compulsory third party (CTP) insurance
• Comprehensive car insurance
• Servicing and maintenance
• Tyres
• Charging costs (for EVs)
• Roadside assistance

At the end of the lease term, you typically have three options: pay out the residual value and own the car, trade in and start a new lease, or return the car.

The reportable fringe benefit — one thing to watch

Even though you pay zero FBT, the ATO still requires your employer to report the grossed-up value of the novated lease benefit on your payment summary as a Reportable Fringe Benefit Amount (RFBA). This doesn't increase your income tax, but it does affect:

• Medicare Levy Surcharge threshold calculations
• Private health insurance rebate calculations
• Child support assessments
• HECS/HELP repayment thresholds
• Family Tax Benefit eligibility

For most people this has minimal impact, but it's worth being aware of — especially if you're close to a Medicare Levy Surcharge threshold or paying off a HELP debt.

How to get started

The process is straightforward:

1. Check your employer offers novated leasing — most large employers and government bodies do. Ask your HR or payroll team.
2. Choose an eligible vehicle — confirm it's a BEV and under the LCT threshold
3. Get quotes from providers — compare SG Fleet, Fleetcare, Maxxia, Smartleasing, and others
4. Review the numbers — make sure the after-tax cost makes sense for your budget
5. Sign the novation agreement — three-way agreement between you, employer, and provider

Is the FBT exemption permanent?

No — it is currently legislated without a defined end date, but it is subject to future government policy decisions. The exemption was introduced to accelerate EV uptake. It could be wound back in future budgets as EV adoption increases. Act while it's available.