Why EVs are the biggest novated lease win in Australia
Since the Electric Car Discount Bill became law, eligible battery-electric and plug-in hybrid vehicles priced below the luxury car tax threshold for fuel-efficient cars are exempt from Fringe Benefits Tax when financed under a novated lease. This single change has transformed the maths in favour of EVs.
For many drivers, the EV exemption converts what used to be a marginal saving into thousands of extra dollars per year, because the entire lease payment, including running costs, can be sacrificed from pre-tax salary without an offsetting FBT bill.
A simple worked example
Take a Tesla Model Y priced just under the LCT threshold, financed over five years for an employee earning $120,000. Under the FBT exemption, the employee can sacrifice the full lease and running cost budget pre-tax, typically saving between $4,000 and $7,000 in annual income tax compared with a post-tax car loan on the same vehicle.
Add lower fuel costs, reduced servicing and any state-based EV incentives, and the total cost of ownership often beats a petrol vehicle one or two price brackets below it.
What to watch out for
The exemption only applies to zero or low-emission vehicles first held and used on or after 1 July 2022, and only while the price stays below the fuel-efficient LCT cap. Plug-in hybrids lose the exemption after 1 April 2025 unless the arrangement was in place earlier.
Charging costs reimbursed via the lease must follow the ATO's safe harbour rate for home electricity. Talk to your packaging provider so the paperwork supports the deduction.
Run the numbers for your situation
Use our free Australian novated lease calculator to see exactly how much you could save.
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