For a few years, plug-in hybrid vehicles sat in a particularly attractive tax position — not quite a full EV, but still FBT exempt under a novated lease. That changed on 1 April 2025. New PHEV novated leases are now subject to the same FBT treatment as petrol and diesel vehicles, meaningfully reducing the tax benefit. This guide explains exactly what changed, how it affects the numbers, what the transitional rules mean for existing leases, and what your options are going forward.
New novated leases for PHEVs entered into from 1 April 2025 are not FBT exempt. Existing leases started before this date remain exempt until 1 April 2027 (transitional period). After 1 April 2027, all PHEV leases — new and legacy — are subject to standard FBT treatment.
The Electric Car Discount Act, which came into effect in July 2022, made battery electric vehicles and plug-in hybrid vehicles FBT exempt when provided through a novated lease, provided the vehicle was below the fuel-efficient LCT threshold. The intent was to accelerate EV uptake by making electric vehicles more affordable through salary packaging.
PHEVs were included in the original legislation as a transitional measure — acknowledging that the charging infrastructure wasn't yet widespread enough to make pure EVs practical for all employees. However, from the outset the government flagged that PHEV eligibility was time-limited.
The exemption for PHEVs ended on 1 April 2025. The government's reasoning was straightforward: PHEVs have a petrol engine, can travel substantial distances on fossil fuel alone, and are not a truly zero-emission vehicle. Continuing to exempt them indefinitely would dilute the policy's purpose. Battery EVs retain the exemption because they are genuinely zero-emission in operation.
The financial impact of losing the FBT exemption is significant. The exemption eliminated the post-tax ECM contribution — which for a typical $65,000 PHEV is around $1,000–$1,100 per month. That's now back as an out-of-pocket cost.
Here's a direct comparison of a $65,000 drive-away PHEV vs a $65,000 BEV on a novated lease, same salary and conditions:
The difference is ~$18,100 over three years — entirely attributable to the ECM post-tax contribution that the PHEV now requires and the BEV doesn't. The salary sacrifice and income tax saving are identical because both vehicles attract the same pre-tax sacrifice on the same drive-away price.
The income tax saving from salary sacrifice still applies to a PHEV. The difference is that the post-tax ECM contribution is now also required — which partially offsets the tax saving. The net result is that the financial benefit of a PHEV novated lease is now much closer to a standard personal loan or dealer finance deal, rather than being dramatically better.
If you entered into a PHEV novated lease before 1 April 2025, your lease is covered by a transitional exemption. Key points:
If your PHEV lease started before 1 April 2025 and you are considering any changes — upgrading the vehicle, adjusting the term, or changing the lease structure — get written confirmation from your provider that the change does not constitute a "material modification" that would trigger the loss of the transitional exemption. The ATO's definition of material modification is nuanced, and the consequences of getting it wrong are significant.
With PHEVs now subject to standard FBT treatment, the comparison between vehicle types for novated leasing has become much simpler. If you are considering a novated lease, a battery EV now has a substantial and unambiguous tax advantage over any other powertrain.
The FBT exemption for BEVs under the fuel-efficient LCT threshold means:
The BEV advantage over a comparable PHEV ranges from roughly $12,000–$20,000 over a three-year lease depending on the vehicle price and your salary. At higher salaries the advantage is larger because the marginal tax rate applying to the sacrifice is higher.
For a full breakdown of the BEV FBT exemption and which vehicles qualify, see our dedicated guide: Electric vehicles and the novated lease FBT exemption explained →
If a suitable battery EV exists in your price range and suits your driving needs, this is almost always the financially optimal choice under a novated lease. The market has expanded significantly — there are now BEV options across most segments at price points accessible for the FBT exemption threshold. The Veercal novated calculator will show you the difference with your specific numbers.
A PHEV novated lease is still a valid choice if the vehicle genuinely suits your needs and the tax saving from salary sacrifice (even without the FBT exemption) is still meaningful at your income level. At salaries above $135,000, the income tax saving from salary sacrifice alone is still substantial. Use the calculator to compare the true total cost against dealer finance or a personal loan — the novated structure may still win, just by a smaller margin than it used to.
For employees in lower tax brackets, the PHEV novated calculation now frequently produces a worse outcome than a straightforward personal loan, once the ECM contribution is factored in. This wasn't true when the exemption applied. Run both scenarios through the full Veercal calculator before committing.
The honest answer: it depends entirely on your salary, the vehicle price, and what your alternatives are.
More likely still worthwhile: Salaries above $135,000, where the 37–45% marginal rate makes the salary sacrifice tax saving meaningful even after paying the ECM contribution. Employees of FBT-exempt organisations (charities, hospitals) where the capped exemption structure changes the calculation entirely.
Less likely worthwhile: Salaries below $80,000, where the 32.5% marginal rate produces a more modest tax saving, and the ECM contribution brings the total out-of-pocket cost close to or above what a personal loan would cost. In this range, the calculation needs careful scrutiny.
The most important thing is to compare the actual total cost — not the headline salary sacrifice figure or the tax saving in isolation. Use the Veercal novated calculator and compare it against the personal loan and dealer finance results for the same vehicle.