The federal FBT exemption for electric vehicles, introduced in 2022, is one of the most consequential pieces of finance-related tax policy of the decade. It is also one of the most misunderstood. Three things have changed in the last 18 months that change who the exemption is genuinely useful for in mid-2026: the plug-in hybrid window closed, the LCT fuel-efficient threshold moved again, and lenders have repriced the underlying finance.
What the exemption still does, in plain English
A novated lease is a salary-packaged car arrangement: your employer pays the lease and running costs out of your pre-tax income, your taxable income falls, and you cover the post-tax employee contribution. Without an FBT exemption, the structure ordinarily attracts fringe benefits tax that broadly offsets the pre-tax saving. The 2022 exemption removed that FBT for eligible vehicles, which is what makes the after-tax economics actually compelling. For a battery-electric vehicle below the LCT fuel-efficient threshold, on a typical professional income, the saving versus a straight car loan is between $4,000 and $8,000 a year for the term of the lease.
The exemption is structured as a benefit to the employer (no FBT), which the employee captures through the salary-packaging arrangement. This is why some employers have not historically offered novated leasing. The administration is on their side; the dollars accrue to the employee. Most public-sector and large corporate employers do offer it; many small businesses do not. If your employer does not offer salary packaging at all, the conversation is with HR or payroll, not with a lender.
What changed: plug-in hybrids
The exemption originally applied to battery-electric, hydrogen fuel-cell, and plug-in hybrid vehicles. The plug-in hybrid window closed on 1 April 2025; arrangements entered into before that date are grandfathered until the end of the current term. For arrangements starting after 1 April 2025, plug-in hybrids no longer qualify. This single change has materially altered what makes sense to package. The plug-in hybrid that worked for one cohort of buyers is now a less attractive packaged option than its battery-electric sibling.
What changed: the LCT fuel-efficient threshold
The exemption applies to vehicles below the luxury car tax fuel-efficient threshold (which is higher than the standard LCT threshold). The fuel-efficient threshold is indexed to motor vehicle CPI annually. For 2025-26 the threshold sits at $91,387. A battery-electric vehicle priced at or above that figure does not qualify, regardless of any other characteristic. This catches a few high-end EV buyers who assumed the exemption applied to all EVs.
Worked numbers on a typical professional income
For a $65,000 battery-electric vehicle financed over 5 years on a $130,000 salary (37 per cent marginal bracket plus Medicare), an indicative novated operating lease at current rates produces a fortnightly cost of roughly $530 to $650 (after the post-tax employee contribution to extinguish FBT). The same vehicle on a comparable secured car loan at 8.5 per cent over 5 years, including running costs paid post-tax, runs to roughly $740 to $810 a fortnight. The difference is between $4,800 and $7,400 a year for the lease term, with the higher end reflecting higher running costs (regional driving, longer commutes).
For an internal combustion vehicle at the same price point, no FBT exemption applies, and the after-tax comparison usually favours the car loan. For a vehicle priced above the fuel-efficient LCT threshold, no exemption applies regardless of drivetrain. For a plug-in hybrid arranged after 1 April 2025, no exemption applies. The exemption-enabled novated lease is now a relatively narrow product fit, but where it fits, it dominates.
What to check before you sign
- Confirm your employer offers novated leasing and that they will run the arrangement through a packaging provider. Without the packaging provider, the FBT exemption is not accessible.
- Confirm the vehicle qualifies. The FBT exemption is for battery-electric and hydrogen fuel-cell vehicles below the LCT fuel-efficient threshold ($91,387 for 2025-26).
- Get the lease quote and a comparable car-loan quote, side by side, including running costs in both. The novated quote will appear cheaper in fortnightly terms but only the after-tax full-term comparison is meaningful.
- Check the residual value at end of term, and the lease structure (operating lease, finance lease, or non-maintained novated). The structure changes the end-of-term decision (own, refinance, return).
- Discuss with your accountant if you have variable income, salary sacrifice already at the contribution cap, or exposure to HECS/HELP repayment. The interaction is structure-specific.
For more, our novated lease hub covers FBT mechanics, the EV-specific salary packaging arrangement, and a side-by-side novated-vs-loan worked calculation. Where the lease wins, it is decisive. Where it does not, a straight secured car loan from the broker panel is almost always cheaper than a dealer-finance arrangement.