You've probably heard someone at work bragging about their new Tesla or BYD and how it’s "basically free" because of some tax trick. Usually, when things sound that good, there’s a catch involving a mountain of paperwork or a very angry letter from the ATO. But honestly? With the ev novated lease fbt exemption, the hype is actually backed by law.
The Australian government decided a while back that they really wanted more electric cars on the road. Like, really wanted them. So, they passed the Treasury Laws Amendment (Electric Car Discount) Bill. It’s a mouthful, but what it did was transform the way a novated lease works for electric vehicles.
What’s the big deal with the ev novated lease fbt exemption?
Basically, a novated lease is just a way for your employer to pay for your car out of your pre-tax salary. In the "old days" (pre-2022), you’d save on income tax, but the government would hit you with something called Fringe Benefits Tax (FBT). This tax was designed to stop people from getting "perks" instead of cash to avoid paying their fair share. It usually hovered around 20% of the car's value, which wiped out a lot of the savings.
Then everything changed.
If you get an eligible electric vehicle, the FBT rate drops to zero. Zero percent. This means you’re paying for the car, the insurance, the tires, and even the electricity to charge it using money that hasn’t been taxed yet. If you're in a high tax bracket, like 37% or 45%, that is a massive chunk of change staying in your pocket instead of going to Canberra.
Wait. There’s a ceiling. You can't just go out and buy a $200,000 Porsche Taycan and expect the tax office to cheer you on. To qualify for the ev novated lease fbt exemption, the car has to be below the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles. For the 2024-25 financial year, that’s $91,387. If the retail price is a dollar over that, the whole deal falls apart and you're back to paying full FBT.
How the math actually works in the real world
Let’s look at a quick, illustrative example. Imagine you’re earning $120,000 a year. You want a Tesla Model 3 that costs about $65,000.
Without a lease, you pay for that car with "post-tax" dollars. That means you’ve already given the government their cut. To have $65,000 in your hand, you actually had to earn closer to $95,000.
With a novated lease under the FBT exemption, the lease payments come out before the taxman touches your paycheck. Your taxable income drops. Because the FBT is gone, your employer doesn’t have to pass those extra costs onto you. You end up with more take-home pay every month compared to a standard car loan. It’s weird, but you’re literally spending money to save money.
The savings aren't just in the purchase price. A novated lease is a "packaged" deal. It covers:
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- Registration and CTP
- Comprehensive insurance
- Scheduled servicing
- Replacement tires
- Charging costs (even home charging if you track it right)
Because the lease company buys thousands of cars, they usually get "fleet pricing" on the car itself and the insurance. You’re piggybacking on their buying power. It’s kinda like a Costco membership but for a car.
The "Residual Value" reality check
One thing people forget is the "balloon payment" at the end. The ATO doesn't let you just pay off the car to zero and keep it. At the end of a 3-year or 5-year lease, there’s a residual amount you have to pay if you want to own the car outright.
For a 3-year lease, that’s usually around 46.88% of the purchase price.
Some people get spooked by this. They think, "I don’t have $30,000 lying around in three years!" But most people just sell the car, pay off the residual with the proceeds, and pocket any profit. Or, they "re-lease" the car and keep the tax benefits going. It’s a cycle.
Is your car actually eligible?
Not every "green" car makes the cut. The ev novated lease fbt rules are pretty specific.
First, it has to be a "zero or low emissions vehicle." This includes Battery Electric Vehicles (BEVs) like a Tesla or a Polestar. It also includes Hydrogen Fuel Cell Electric Vehicles (if you can actually find a place to fill one up).
What about hybrids? This is where it gets tricky.
Plug-in Hybrid Electric Vehicles (PHEVs) are currently eligible, but there’s an expiry date. The government views them as a "transition" technology. After April 1, 2025, new PHEV leases will no longer be FBT-exempt. If you already have a PHEV lease in place before then, you're usually "grandfathered" in, but if you’re looking to get one now, you need to move fast or you’ll miss the boat. Standard hybrids—the ones you don't plug in, like a basic Toyota Prius—don't count at all. Never did.
The "Second Hand" loophole
You don't have to buy a brand-new car. You can lease a used EV and still get the FBT exemption, provided the car was first held and used after July 1, 2022. If the previous owner bought it in 2021, you're out of luck. The government wants to encourage new EV adoption, not just shuffle old cars around.
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Always check the "Date of First Service" or the original registration date. If it’s June 30, 2022, that car is a tax dud. If it’s July 2, 2022, it’s a tax goldmine.
Employers love this, but they won't tell you why
Actually, some employers hate it because of the admin work. But smart ones realize it costs them almost nothing to offer a novated lease.
In a standard lease, the employer has to deal with FBT reporting and payments. With the ev novated lease fbt exemption, the reporting is still there (it shows up on your Payment Summary as a Reportable Fringe Benefit Amount), but the tax bill is zero.
The RFBA is an important detail. Even though you don't pay tax on the benefit, the "value" of the car benefit is recorded. This can affect things like your HECS/HELP repayments, Medicare Levy Surcharge, or child support payments. It’s not "invisible" money. If you’re right on the edge of a HECS repayment bracket, the "ghost" value of the car could push you up into a higher repayment tier.
Talk to an accountant. Seriously. Don't just trust a car salesperson.
Why people are choosing EVs over Petrol now
Aside from the tax, the running costs are just stupidly low.
I know a guy who switched from a Toyota Kluger to a Kia EV6. He was spending $400 a month on petrol. Now, his charging costs are about $60. Because he’s on a novated lease, that $60 is also pre-tax.
Maintenance is another weird one. EVs don’t have spark plugs. They don’t have oil filters. They don’t have timing belts or exhaust systems to rust out. The main "service" is basically checking the wiper fluid and making sure the tires aren't bald. For a lease company, this makes the "budget" part of your lease much more predictable.
The Infrastructure Headache
It’s not all sunshine and tax breaks. If you live in an apartment without a charger, a novated lease might become a headache. You’ll be spending your Saturday mornings sitting at a public fast-charger.
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However, if you can charge at home, the ev novated lease fbt exemption allows you to include the cost of a home charging station in the lease package. You can literally get the charger installed and paid for out of your pre-tax salary. That’s a few thousand dollars in value right there.
Common traps to avoid
Don't over-spec the car. It’s tempting to add the "Performance" pack or the fancy 21-inch wheels. But remember that LCT threshold of $91,387. If those options push the price to $91,388, you lose the FBT exemption. You’d be better off buying the base model and getting the windows tinted yourself later.
Another trap: The "Kms" myth.
In the old days, you had to drive a certain number of kilometers to make a lease worthwhile. That is gone. Dead. Buried. The "Statutory Formula" method means it doesn't matter if you drive 5,000km or 50,000km; the tax treatment is the same. In fact, if you don't drive much, an EV lease is even better because you aren't "wasting" the benefit on high depreciation.
How to get started without losing your mind
First, check if your employer even allows novated leasing. Most big companies do. Small businesses might need a bit of a nudge. You can point them toward providers like Maxxia, Smartsalary, or LeasePlan (now part of ALD Automotive).
Once you know you're cleared for takeoff:
- Pick a car that is 100% electric or a PHEV (if before April 2025).
- Verify the "Drive Away" price is under the $91,387 threshold.
- Get a quote from a leasing company that shows the "Pre-tax" vs "Post-tax" comparison.
- Check the Reportable Fringe Benefit Amount (RFBA) and how it hits your HECS or other obligations.
Actionable Insights for Your Next Move
If you’re sitting on the fence, do these three things this week.
Check your Top Line: Look at your last payslip. If you are in the 32.5%, 37%, or 45% tax bracket, the ev novated lease fbt exemption is mathematically biased in your favor. If you earn under $45,000, the savings are much thinner and might not be worth the admin.
Test Drive a "Threshold" Car: Go drive a Tesla Model Y, a BYD Seal, or an Hyundai IONIQ 5. These are all comfortably under the tax cap and are designed to maximize the lease benefit.
Request a "Net Take-Home" Quote: Ask a leasing provider for a quote that specifically shows your "Net Take-Home Pay" before and after the lease. This is the only number that matters. If your take-home pay only drops by $600 a month, but you were spending $400 on petrol and $200 on car loan interest anyway, the car is effectively costing you nothing extra.
The FBT exemption isn't going to last forever. While there’s no official "end date" for pure EVs yet, governments have a habit of pulling these incentives once they reach their adoption targets. If you're going to do it, the 2024-2025 window is arguably the sweet spot for maximum hardware choice and settled regulations.