An eligible electric car under a novated lease is exempt from fringe benefits tax (FBT). The exemption removes FBT on the eligible car benefit, but it does not by itself establish the total cost of an EV lease or how it compares with a petrol or diesel lease.
What actually qualifies for the exemption
The FBT exemption applies to a car that is:
- Battery electric or hydrogen fuel cell — PHEVs do not qualify for benefits provided on or after 1 April 2025, except where the transitional rules in Schedule 2 item 5 of the Electric Car Discount Act 2022 apply. The transition requires a pre-cutoff commitment covering a period that began before and includes the relevant time, no new commitment on or after 1 April 2025 covering that time and a car benefit for that vehicle having been provided before the cutoff. A pre-cutoff agreement alone is not enough.
- First held and used on or after 1 July 2022
- No luxury car tax (LCT) has become payable on a supply or importation of the car before the car benefit is provided, as required by section 8A of the Fringe Benefits Tax Assessment Act 1986
If the car is outside the PHEV transition or LCT became payable on its supply or importation, the section 8A exemption is unavailable. A drive-away price alone does not establish whether the statutory LCT test is met; the employer needs to assess the supply or importation under the LCT rules. If section 8A does not apply, the employer must assess any car benefit under the FBT rules that apply to the arrangement; this exemption is not a partial reduction.
How the exemption changes the FBT calculation
An employer may calculate a car benefit using either the statutory formula method or the cost-basis (operating-cost) method under sections 9 and 10 of the FBTAA. The example below uses the statutory formula only. It assumes the car is available for the full FBT year, no recipient contribution is made, the employer is entitled to GST credits and the benefit is not exempt. Under those assumptions, 20% of the car's base value is the taxable value before gross-up and 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%: $11,732.33 for this full-year example
That is the counterfactual employer FBT amount removed by the exemption under these assumptions, not a universal saving or a measure of the employee's lease cost. 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, an exempt EV can still contribute to your reportable fringe benefits amount (RFBA). The employer first adds the taxable values of reportable benefits for the employee across the FBT year. If that combined taxable value is more than $2,000 before gross-up, the employer calculates the RFBA using the lower Type 2 gross-up rate (1.8868). The ATO explains the reporting threshold and gross-up. For the same $60,000 EV, assuming the benefit is reportable:
- 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. The FBT exemption does not remove those separate reporting and income-test effects.
Selected income-test effects of the reportable amount
Take the same $60,000 EV, whose reportable amount is $22,641.60. The examples below illustrate selected income-test effects only. They are not a full lease-cost comparison.
Study loan repayments. Repayment income includes the reportable amount, so it can increase the income-based repayment formula:
| 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 | $9,355.53 | +$3,434.73 |
The $70,000 row illustrates the threshold effect. That salary sits just below the $69,528 repayment threshold once the $1,000 standard deduction comes off — taxable income is $69,000 — so the income-based formula is nil. Then the reportable amount lifts repayment income to $91,641.60 and the formula changes from nothing to $3,317.04. Nothing about the salary changed. The table assumes the person's repayable HELP debt is at least the amount shown; under section 154-20(1) of the Higher Education Support Act 2003, compulsory liability is the least of the statutory formula, 10% of repayment income and repayable debt.
Medicare levy surcharge. The single threshold for 2026-27 is $105,000, and income for surcharge purposes includes the reportable amount. With the standard deduction used in this example and a $22,641.60 reportable amount, a salary of $83,358.40 reaches exactly $105,000; it does not exceed the threshold. Under the example's other assumptions, including no hospital cover, someone on $85,000 has a $1,066 surcharge calculation.
For the $90,000 row, the listed HELP formula difference and the stated surcharge example total $4,512.24 under their respective assumptions. This is a limited illustration of income-test effects, not the total EV or novated-lease cost and not a comparison of lease savings.
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.
The FBT exemption and the reportable amount have separate effects. The salary packaging and novated leases article explains the separate pre-tax salary-sacrifice treatment.
Employee contributions still work, and here they do something different
An eligible post-tax recipient contribution can reduce the car benefit's notional taxable value dollar for dollar. The ATO's EV home-charging guidance shows recipient contributions being deducted when working out taxable value. Where the employee remains above the reporting threshold, a $1 contribution reduces RFBA by $1.8868 ($1 multiplied by the Type 2 gross-up rate), not by $1.
For an exempt EV, this reduction affects the reportable amount rather than FBT payable on the exempt benefit. If the contribution takes the employee's combined taxable value of reportable benefits to $2,000 or less, the employer must apply the reporting threshold to that lower pre-gross-up total.
The LCT test is about whether LCT became payable
The statutory test is whether any LCT became payable on a supply or importation of the car before the car benefit is provided. It is not a simple comparison of the advertised or drive-away price with a published threshold. The LCT rules and the facts of the supply or importation determine whether LCT became payable.
If LCT did become payable, section 8A's exemption condition is not met. That does not by itself determine the final FBT payable: the employer must assess the car benefit under the rules and any other concessions that apply to the arrangement.
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), meet the applicable timing conditions and satisfy the statutory test that no LCT has become payable on a supply or importation before the car benefit is provided. A drive-away price alone does not establish that test.
Benefits provided on or after 1 April 2025 do not qualify for the PHEV exemption unless every transitional condition in Schedule 2 item 5 of the Electric Car Discount Act 2022 is met. Among other conditions, the car benefit must have been provided before 1 April 2025, the pre-cutoff commitment must cover the relevant period and there must be no new commitment on or after that date that covers the relevant time. A signed agreement before the cutoff is not, by itself, enough.
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.
It is the counterfactual employer FBT for the statutory-formula example above, using its stated full-year and no-contribution assumptions. Actual FBT depends on the valuation method and the facts of the benefit; it is not the employee's lease saving or a full lease-cost comparison.
Because the reporting rule and the FBT rule are separate. The exemption does not itself remove the notional taxable value from RFBA calculations. If the combined taxable value of reportable benefits for the employee is more than $2,000 in the FBT year before gross-up, the employer calculates the RFBA using the Type 2 rate of 1.8868.
It can increase the income-based repayment formula because repayment income includes the reportable amount. A $60,000 EV adds $22,641.60 to that income figure. The formula difference varies by salary, as illustrated above; final compulsory liability is subject to the statutory limits, including repayable debt.
It reduces the notional taxable value dollar for dollar. If the employee remains above the pre-gross-up reporting threshold, the corresponding RFBA reduction is multiplied by the Type 2 rate of 1.8868. Since the FBT is already nil, its effect in this context is on income-test calculations that include the reportable amount.
The section 8A exemption condition is not met. The employer must assess the car benefit under the FBT rules and any other concessions that apply; a drive-away price alone is not enough to determine whether LCT became payable.