EV novated lease: salary packaging an electric car

The FBT Exemption for Electric Vehicles Explained

The Electric Car Discount was introduced by the Australian Government through the Treasury Laws Amendment (Electric Car Discount) Act 2022, which took effect on 1 July 2022. Under this legislation, eligible zero and low-emission vehicles are exempt from Fringe Benefits Tax (FBT) when provided to an employee as part of a salary packaging arrangement, including through a novated lease.

Prior to this change, salary packaging any vehicle, whether petrol, diesel, or electric, attracted FBT on the private use component. The FBT was typically managed through the Employee Contribution Method (ECM), where the employee made post-tax contributions from their salary to offset the FBT liability. This post-tax contribution reduced the overall tax savings of the novated lease.

With the FBT exemption, eligible EVs no longer attract FBT, which means no post-tax employee contributions are required. The entire lease amount, vehicle finance plus all running costs, comes from pre-tax salary. This dramatically increases the net savings compared to a conventional vehicle and compared to buying an EV outright with after-tax income.

Which Vehicles Are Eligible for the FBT Exemption?

To qualify for the FBT exemption under the Electric Car Discount, a vehicle must meet all of the following criteria:

• Vehicle type: The vehicle must be a battery electric vehicle (BEV) or hydrogen fuel cell vehicle. Plug-in hybrids (PHEVs) lost the exemption from 1 April 2025 unless already in exempt use under a binding commitment made before then, and standard hybrids were never eligible.
• Value threshold: The value of the vehicle at the first retail sale must be at or below the fuel-efficient luxury car tax threshold ($91,387 for 2025-26, $91,661 for 2026-27). This threshold is indexed annually.
• First held and used: The vehicle must be first held and used on or after 1 July 2022. Vehicles that were salary packaged or owned before this date are not eligible for the exemption.
• Salary packaging arrangement: The vehicle must be provided as a fringe benefit, typically through a novated lease or other salary packaging arrangement where the employer facilitates the payments.

It is important to note that the value threshold applies to the first retail sale price of the vehicle, not the price you pay. If a vehicle had a recommended retail price above the threshold when first sold (even if you negotiate a lower price or buy it second-hand for less), it may not qualify for the exemption. Always verify eligibility with your novated lease provider.

EV vs Petrol Novated Lease: Savings Comparison

Here is what the novated lease calculator estimates for an eligible battery-electric car priced at $55,000, on a $120,000 salary over a 5-year lease, and what changes for a petrol car at the same price.

Illustrative figures from the novated lease calculator, not a quote: an FBT-exempt battery-electric car at $55,000, a $120,000 salary, a 5-year lease at an indicative 6.5% p.a. with the ATO's 28.13% residual, $3,000 a year of running costs (the calculator's default for an EV) and the 2026-27 resident tax rates plus the 2% Medicare levy. The saving compares the lease with paying the same finance and running costs from after-tax pay, and leaves out provider fees. Run your own numbers.

A petrol car at the same price is not exempt, so FBT applies. Under the statutory formula its taxable value for a full year is 20% of the car's base value, $11,000 for a $55,000 car, and that amount is usually paid from after-tax pay as an employee contribution to bring the FBT to nil. Because the contribution comes from after-tax pay, it takes back most of the income tax saving, and petrol running costs are usually higher too.

Popular Electric Vehicles for Salary Packaging

The Australian EV market has expanded rapidly, with many compelling options now available below the FBT exemption threshold ($91,661 for 2026-27). Here are some popular choices for EV salary packaging; check the exact variant and accessories you want against the threshold:

How EV Salary Packaging Works Step by Step

The process for salary packaging an electric vehicle is the same as any novated lease, with the added benefit that eligible EVs attract zero FBT. Here is how it works:

1. Choose your EV, select an eligible battery-electric vehicle below the threshold ($91,661 for 2026-27). You can choose from new stock at a dealer, order directly from the manufacturer, or in some cases, source a used EV.
2. Get a novated lease quote, the quote shows your pre-tax salary deduction, estimated running costs (including home charging), and total annual savings. For EVs, the quote will show zero FBT.
3. Employer setup, the provider works with your employer or its salary packaging provider to establish the novation agreement. Most employers familiar with salary packaging can set this up quickly.
4. Finance approval and vehicle purchase, once your finance is approved, the vehicle is purchased through the novated lease arrangement, with the GST credit claimed by the financier. Check the car price against a quote of your own.
5. Drive and save, your lease payments and running costs are deducted from your pre-tax salary each pay cycle. You save on income tax, GST, and FBT from day one.

Charging Your Salary-Packaged EV

One of the practical considerations for EV salary packaging is how you charge the vehicle and how charging costs are handled within the novated lease. Here is what you need to know:

Home Charging

Most EV owners charge primarily at home, either using a standard power point (slow charging at about 2-3kW) or a dedicated wall charger (faster charging at 7-22kW). The cost of home charging is estimated based on your expected annual kilometres, the vehicle’s energy consumption (typically 15-20kWh per 100km), and your electricity rate. This cost is included in your novated lease running cost budget and deducted from your pre-tax salary.

Some novated lease providers can also arrange a home wall charger (such as a Tesla Wall Connector or universal EVSE). The ATO says a home charging station is not a car expense, so the EV exemption does not cover it: if your employer provides the charger or pays for it through your package, it can be a separate fringe benefit that attracts FBT. Ask the provider how they treat a charger, and compare that with buying and installing it yourself.

Public Charging

Public charging networks across Australia are expanding rapidly, with providers like Chargefox, Evie Networks, Tesla Supercharger (now open to non-Tesla vehicles), and others. Public charging is generally more expensive per kWh than home charging but is useful for long-distance travel. Public charging costs can be factored into your running cost budget.

Workplace Charging

If your workplace offers EV charging stations, this can further reduce your running costs. Some employers provide free workplace charging as a benefit, while others charge at cost. Workplace charging provided by the employer may have separate FBT implications (consult a tax advisor), but charging your own salary packaged EV at a paid workplace station is treated like any other fuel cost.

EV Maintenance and Running Costs

Electric vehicles have significantly lower maintenance requirements than petrol or diesel vehicles, which is reflected in the lower running cost budget of an EV novated lease. Key differences include:

• No oil changes, EVs do not have an internal combustion engine, so there is no engine oil to change. This eliminates one of the most frequent maintenance tasks.
• Regenerative braking reduces brake wear, EVs use regenerative braking, which recovers energy and reduces wear on the friction brakes. Many EV owners report brake pads lasting the life of the vehicle.
• Fewer moving parts, the electric drivetrain is far simpler than a combustion engine, with fewer components that can wear out or fail.
• Tyre replacement, EVs are heavier than equivalent petrol cars (due to the battery) and have instant torque, which can increase tyre wear. Budget for tyre replacement is included in the novated lease.
• Battery warranty, most EV manufacturers offer an 8-year or 160,000km battery warranty, providing peace of mind on the most expensive component.

Tax Considerations for EV Salary Packaging

While the FBT exemption is the headline benefit for EV salary packaging, there are several other tax considerations to be aware of:

• Reportable fringe benefits, even though the FBT is exempt, the employer may still need to report the value of the benefit on your income statement (previously known as a payment summary). This does not affect your income tax but may impact income tests for government benefits like HECS-HELP repayments, Medicare Levy Surcharge, and Child Support.
• Luxury Car Tax, fuel-efficient cars, including most EVs, have a higher Luxury Car Tax threshold than other cars, and it is the same figure the FBT exemption tests against ($91,661 for 2026-27). An EV priced above it pays LCT and gets no FBT exemption.
• State incentives, several Australian states offer additional incentives for EVs, including stamp duty exemptions or reductions, registration discounts, and toll rebates. Check your state government website for current incentives.
• Future policy changes, Treasury's September 2026 exposure draft, not yet law, keeps the full exemption for commitments made before 1 April 2027; from then to 31 March 2029 only cars with a base value of $75,000 or less stay fully exempt, and from 1 April 2029 eligible EVs get a 25% discount instead. Existing leases keep their treatment for their term. What the draft law means.

Is an EV Novated Lease Right for You?

An EV novated lease is likely a great fit for you if:

• You are a PAYG employee with an employer that offers salary packaging
• You earn enough that the tax savings are meaningful (generally $60,000+ annual salary)
• You have access to home or workplace charging (or are willing to install a home charger)
• Your daily driving is within comfortable EV range (most EVs offer 300-500km+ per charge)
• You want to reduce your fuel costs and environmental impact

If you are unsure whether an EV suits your needs, consider your typical daily driving distance (most Australians drive less than 40km per day, well within any EV’s range), access to charging, and whether you regularly take long road trips (the expanding public charging network makes this increasingly feasible).

Getting Started with EV Salary Packaging

Ready to explore EV salary packaging? Use the novated lease calculator to estimate your savings on a specific EV, then get a written quote from a novated lease provider, based on your salary, the car and your employer's arrangements, and compare it with a car loan before you sign. If you would like quotes gathered from more than one provider, get connected with a novated lease specialist.