EV novated lease FBT exemption: how it works in Australia (FY2026–27)

7 min read · Updated 19 October 2026

Since July 2022, eligible electric vehicles novated under a salary sacrifice arrangement are exempt from Fringe Benefits Tax entirely. For the right person — a PAYG employee earning $80,000+ considering an EV under $91,661 — this is one of the most significant tax incentives in the Australian personal finance landscape. This guide explains exactly how it works and what the savings look like in practice.

What changed and when

Prior to 1 July 2022, a car provided under a novated lease attracted Fringe Benefits Tax regardless of the vehicle type. The employer (via employee contribution) paid FBT on the benefit, which for a typical $60,000 vehicle amounted to roughly $9,000–$12,000 per year. This significantly reduced the tax advantage of novated leasing.

The Treasury Laws Amendment (Electric Car Discount) Act 2022 changed this. From 1 July 2022, eligible low-emission vehicles provided under a novated lease or as a car benefit are exempt from FBT. The employee keeps the full pre-tax salary sacrifice saving without the FBT contribution eating into it.

Which vehicles qualify

Common eligible models in Australia (2025) include Tesla Model 3, Tesla Model Y, BYD Atto 3, BYD Seal, MG4, Hyundai IONIQ 6, Kia EV6, Polestar 2, and others — provided they're priced below the LCT threshold.

The $91,661 threshold — what it means

The FBT exemption only applies if the vehicle's purchase price (the "base value" for FBT purposes, which includes GST but excludes registration and insurance) is at or below the luxury car tax threshold for fuel-efficient vehicles — $91,661 for FY2026–27.

For vehicles priced above this threshold, the FBT exemption does not apply, and standard FBT treatment resumes. The threshold applies at the time of first provision of the vehicle — it's not re-assessed annually as the vehicle depreciates.

How much FBT you save

For a vehicle that's not exempt, annual FBT under the statutory formula is calculated as: vehicle price × 20% × 2.0802 (gross-up) × 47% (FBT rate). For a $72,000 EV, this would have been:

The full tax saving — FBT exemption + salary sacrifice combined

The FBT exemption is additive to the standard salary sacrifice saving. A PAYG employee earning $110,000 who novates a $72,000 EV over 3 years benefits from both:

• Pre-tax salary sacrifice saving — finance payments and running costs deducted pre-tax, reducing income tax
• FBT exemption saving — no post-tax FBT contribution required (which for a $72,000 vehicle would have been ~$1,173/month)

Worked example: $72,000 EV, $110,000 salary, 3-year novated lease

State government EV rebates (additional savings)

Several state governments offer additional EV incentives that stack on top of the FBT exemption:

Who benefits most from the EV FBT exemption

• Employees in the 30%+ tax bracket ($45,001+) — the combined FBT exemption + salary sacrifice saving is most powerful at higher marginal rates.
• High-km drivers — more km means more running costs to package pre-tax, and EV charging costs are significantly cheaper than petrol.
• Employees whose employers absorb management fees — some employers include novated lease management as a benefit, which further improves the economics.
• People who would have considered a novated lease anyway — the EV exemption is a supercharger on top of an already-favourable arrangement, not a reason to choose novated leasing if it wouldn't otherwise suit you.

What to watch out for

• Above-threshold vehicles — if the EV is priced above $91,661, the FBT exemption doesn't apply. A $95,000 Tesla Model S gets no FBT benefit.
• Policy changes — this exemption is legislated policy, not a permanent feature of the tax code. Future governments could change or remove it. It's worth modelling what the numbers look like without the exemption when planning long-term.
• Reportable fringe benefits — even though no FBT is payable, the amount of salary packaged for an EV novated lease is still reported as a Reportable Fringe Benefits Amount (RFBA) on your payment summary. This can affect means-tested benefits, HECS repayment thresholds, and income-tested Medicare levy surcharge calculations.
• End-of-lease residual — you'll still need to pay or refinance the ATO residual at the end of the lease term. Factor this into your planning.

Comparing EV novated vs ICE novated vs personal loan

The most useful comparison is three-way: EV novated (FBT exempt) vs equivalent ICE vehicle novated (FBT applies) vs personal loan. The Veercal calculator lets you toggle the EV setting and FBT exemption on and off to see the exact impact for your salary and vehicle price.

As a rough guide for a $70,000 vehicle, $100,000 salary, 3-year lease:

These are illustrative ranges — your exact figures depend on salary, running costs, provider fees, and state charges. Use the calculator for your specific numbers.

Common questions

General information only — not financial advice. Tax legislation, ATO rates, and state government EV incentive programs change frequently. FBT exemption eligibility depends on specific vehicle characteristics, pricing, and the nature of the arrangement. PHEV eligibility in particular should be verified against current ATO guidance. Reportable Fringe Benefits Amounts may affect your eligibility for other government benefits and thresholds. Always consult a licensed financial adviser and/or tax professional before making decisions based on this information. Veercal does not hold an Australian Financial Services Licence.