An eligible electric car under a novated lease is exempt from fringe benefits tax (FBT), which removes the single biggest cost that normally sits inside a petrol or diesel car lease. That is the whole reason EV novated leases are marketed so heavily right now — it is not a discount, it is the absence of a tax that would otherwise run into five figures a year.
What actually qualifies for the exemption
The FBT exemption applies to a car that is:
- Battery electric or hydrogen fuel cell — plug-in hybrids (PHEVs) do not qualify from 1 April 2025 onward, unless you had a binding commitment to keep providing that specific PHEV in place before that date
- First held and used on or after 1 July 2022
- Under the luxury car tax (LCT) threshold for fuel-efficient vehicles at the time it was first held — $91,661 for a car first held in 2026-27
If any one of those fails — it is a PHEV bought new today, or the car's drive-away price is above the threshold — the car is taxed as a normal fringe benefit, and the exemption does not apply at all (it is not a partial discount).
Why the exemption is worth so much
Without the exemption, a car provided through salary packaging is taxed using the statutory formula method: 20% of the car's base value becomes the taxable value, which is then grossed up and taxed at the 47% FBT rate.
Take a $60,000 EV under a novated lease, GST-creditable (the usual case, since the employer claims GST credits on the lease costs):
- Taxable value: $60,000 × 20% = $12,000
- Grossed up (Type 1, GST-creditable): $12,000 × 2.0802 = $24,962
- FBT payable at 47%: $11,732 a year
That $11,732 is what the exemption removes entirely. Run your own numbers, including the RFBA effect below, with the FBT & Novated Lease Calculator.
The exemption does not mean the benefit disappears from your record
Even though no FBT is payable, the value of an exempt EV still counts towards your reportable fringe benefits amount (RFBA) — shown on your income statement, using the lower Type 2 gross-up rate (1.8868) on the net taxable value, once the grossed-up total passes $2,000 for the year. On the same $60,000 EV:
- RFBA: $12,000 × 1.8868 = $22,641.60, reported on your income statement
RFBA does not add to your taxable income and you pay no income tax on it. But it counts in the income tests for the Medicare levy surcharge, study loan repayment income, the private health insurance rebate, family assistance and child support. It is genuinely free of FBT, and it is not free.
What the reportable amount actually costs you
This is the part the marketing does not model, and it is not small. Take the same $60,000 EV, whose reportable amount is $22,641.60.
Study loan repayments. Repayment income is taxable income plus the reportable amount, so a loan holder repays as though they earned $22,641.60 more than they did:
| Salary | Repayment without the car | With the car | Difference |
|---|---|---|---|
| $70,000 | $0 | $3,317.04 | +$3,317.04 |
| $90,000 | $2,920.80 | $6,317.04 | +$3,396.24 |
| $110,000 | $5,920.80 | $9,355.18 | +$3,434.38 |
The $70,000 row is the one to look at twice. That salary sits just below the $69,528 repayment threshold once the $1,000 standard deduction comes off — taxable income is $69,000 — so nothing at all is repayable. Then the reportable amount lifts repayment income to $91,641.60 and the repayment goes from nothing to $3,317.04. Nothing about the salary changed.
Medicare levy surcharge. The single threshold for 2026-27 is $105,000, and income for surcharge purposes includes the reportable amount. So with a $22,641.60 reportable amount you cross it at a salary of $83,358.40. Someone on $85,000 with no hospital cover, who was comfortably clear of the surcharge, now pays $1,066 of it.
Together, on $90,000 with a study loan and no hospital cover, the exempt EV costs $4,512.24 a year in tests that have nothing to do with income tax.
Set that beside the $11,732.33 of FBT the exemption removed and the shape of the deal is clear: the saving is real and it is large, but roughly 39% of it flows straight back out through income tests, and it lands on the employee rather than the employer who avoided the FBT.
Both sides of the exemption
What the exemption saves, and what it still costs you
FBT the employer avoids
$11,732
a year
What it costs you
$4,513
a year, from a $22,642 reportable amount
Your compulsory study loan repayment rises by $3,396. The reportable amount pushes you over the Medicare levy surcharge threshold, adding $1,116. None of this is income tax — the reportable amount is not taxable. It is the income tests counting it.
Statutory formula, full year, GST-creditable employer. Excludes the pre-tax salary sacrifice saving, which is the other half of the deal — see the FBT & Novated Lease Calculator for the whole package.
None of this makes an EV novated lease a bad deal — the pre-tax salary sacrifice saving is a separate and substantial benefit, covered in salary packaging and novated leases. It makes it a deal you should price with the reportable amount included, particularly if you have a study loan, no hospital cover and a salary in the $80,000s.
Employee contributions still work, and here they do something different
You can make a post-tax employee contribution towards an exempt EV, the same as any other car benefit. It reduces the taxable value dollar for dollar, and therefore the reportable amount.
On an ordinary petrol lease the point of that contribution is to cancel the FBT. Here the FBT is already nil, so the contribution is doing something else entirely: buying down the reportable amount. Whether that is worth it is arithmetic rather than principle — you are paying post-tax dollars now to reduce an income-test figure later, and it only pays if the tests are actually biting you. If you have no study loan and hospital cover, it very likely is not.
The threshold is tested once, and it is unforgiving
Two details about the luxury car tax threshold that catch people out:
- It is tested when the car is first held, against the threshold for that year, and the answer does not change afterwards. A car that qualified in an earlier year stays exempt even as the threshold moves, and a car that missed does not become eligible later.
- It is an all-or-nothing test, not a cap. A car a dollar over the threshold is not exempt on the first $91,661 and taxed on the rest — it is simply not exempt, and the whole statutory taxable value is subject to FBT.
The threshold also applies to the car's value including options and accessories fitted before delivery, so a base model under the line can cross it on the way out of the dealership.
Frequently Asked Questions
No. The car must be battery electric or hydrogen fuel cell (not a plug-in hybrid, unless a pre-1 April 2025 commitment applies), first held and used from 1 July 2022 onwards and priced under the fuel-efficient luxury car tax threshold ($91,661 for a car first held in 2026-27).
No, not for new arrangements. PHEVs lost eligibility for the exemption from 1 April 2025, unless there was a binding financial commitment to continue providing that specific vehicle in place before that date.
Yes, indirectly. While no FBT is payable, the car's value is still added to your reportable fringe benefits amount, which counts towards income tests including HECS/HELP repayment income and the Medicare levy surcharge threshold.
On a $60,000 EV under the statutory formula method the exemption avoids $11,732.33 a year in FBT, and the figure scales with the car's base value. That saving belongs to the employer, who is the one liable for FBT.
Because the reporting rule and the FBT rule are separate. The exemption removes the liability; it does not remove the benefit from your income statement. The reportable amount is still calculated on the same taxable value, grossed up at the Type 2 rate of 1.8868, and reported once the grossed-up total for the year passes $2,000.
Yes, usually by a lot. Repayment income includes the reportable amount, so a $60,000 EV adds $22,641.60 to the figure your repayment is calculated on — about $3,396 a year extra at most salaries, and proportionally far more if your salary sits just above the $69,528 repayment threshold.
It reduces the reportable amount dollar for dollar, which is the only thing it can do here since the FBT is already nil. Worth modelling if you have a study loan or are near the Medicare levy surcharge threshold; likely not worth it if neither applies to you.
The exemption does not apply at all. It is not scaled back and there is no partial concession — the full statutory taxable value is subject to FBT as with any other car. The test is applied when the car is first held, using that year's threshold.