EV novated lease and the FBT exemption

Last reviewed July 2026 · figures use official 2026-27 rates.

The short version: a novated lease lets you pay for a car and its running costs out of your pre-tax salary. For an eligible electric car that is also exempt from Fringe Benefits Tax, which is the piece that normally eats most of the saving. The exemption is under review, and a lease started before it tightens generally locks in the benefit for that lease's term, which is why so many people are moving now.

How a novated lease works

A novated lease is a three-way arrangement between you, your employer and a finance company. Your employer deducts the lease and running costs from your salary before tax and pays them to the financier on your behalf. Because the money comes out pre-tax, you are effectively buying the car and its fuel, insurance, rego and servicing with income you never paid tax on. The novated lease calculator compares the whole arrangement against a normal car loan.

Why the FBT exemption is the whole point

Normally there is a sting. Getting a car through salary packaging creates a Fringe Benefits Tax liability for your employer, and that cost usually gets passed back to you, which cancels out much of the pre-tax saving. The electric car FBT exemption removes that liability entirely for eligible vehicles. No FBT means the pre-tax saving stays in your pocket, and that is what makes an EV novated lease so much sharper than a petrol one or a straight car loan.

Which cars qualify

To get the exemption the car has to tick every one of these:

Plug-in hybrids stopped qualifying from 1 April 2025, unless you had a binding commitment in place before that date and your use has continued without a break. So a new PHEV lease today does not get the exemption; a battery EV under the price cap does.

The catch: it still shows up on your income statement

Even when no FBT is payable, the benefit is a reportable fringe benefit. The grossed-up value lands on your income statement and feeds several income tests, even though it is not taxed as income. That can lift your HECS repayment income, push you over the Medicare levy surcharge threshold, affect Division 293, and reduce family payments or other means-tested benefits. It does not undo the saving, but it is the part people forget to check. Our Medicare levy surcharge and HECS calculators show how a higher reported income moves those numbers.

The deadline that has everyone moving

The full exemption is under review and is set to tighten from 1 April 2027. A novated lease entered under the current rules before that date generally keeps the full exemption for the life of that lease, even after the rules change for new arrangements. That is the reason the searches and the sales are spiking now: locking in a three or five year lease under today's rules carries the benefit through to the end of the term. Confirm the current position with the ATO before you sign, since review timelines can shift.

A rough worked example

Take someone on $120,000 leasing a $60,000 battery EV. On a petrol car of the same price, FBT would claw back a large slice of the pre-tax benefit. With the EV exemption there is no FBT, so the lease and running costs come out of pre-tax salary in full. Depending on the term and the running costs bundled in, that difference is often several thousand dollars a year against a comparable loan. Run your own salary and car price through the novated lease calculator for a real figure, then check the reported income effect on your other entitlements.

An EV novated lease is not automatically the cheapest way to own a car. It shines when you would have bought a new EV under the price cap anyway, use it enough to justify the running costs, and stay in the job long enough to see the lease through. Weigh it against simply buying outright or with a normal loan.

Common questions

How does the EV novated lease FBT exemption work?
An eligible electric car packaged through a novated lease is exempt from Fringe Benefits Tax, so the lease and running costs come out of your pre-tax salary with no FBT clawing the benefit back. The car must be battery or hydrogen, under the $91,661 price cap, and first used on or after 1 July 2022.
What is the price cap for the EV FBT exemption?
The car's value must be below the luxury car tax threshold for fuel-efficient vehicles, which is $91,661 for the 2026-27 year. Above that cap the exemption does not apply.
Do plug-in hybrids still get the exemption?
No. Plug-in hybrid electric vehicles stopped qualifying from 1 April 2025, unless there was a binding financial commitment before that date and private use has continued uninterrupted. Battery electric and hydrogen cars under the cap still qualify.
Does an exempt EV lease affect my other income tests?
Yes. Even with no FBT payable, the benefit is a reportable fringe benefit. The grossed-up value appears on your income statement and can raise your HECS repayment income, Medicare levy surcharge, Division 293 and family payment tests.
Is there a deadline for the EV novated lease FBT exemption?
The full exemption is set to tighten from 1 April 2027. A lease entered under the current rules before then generally keeps the exemption for the life of that lease, which is why many buyers are locking in a lease now. Confirm the current position with the ATO before signing.

Calculators in this guide

Sources