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 = $22,642, reported on your payment summary
RFBA does not add to your taxable income or your income tax bill, but it does count towards income tests for things like the Medicare levy surcharge, HECS/HELP repayment income, the private health insurance rebate and child support assessments. It is genuinely free of FBT, but it is not entirely invisible to the tax and transfer system.
Employee contributions still work the same way
You can still make a post-tax employee contribution towards an exempt EV to offset the taxable value for RFBA purposes, the same as with any other car benefit — though because the FBT itself is already zero, the main reason to do this is to manage the RFBA figure rather than to reduce FBT that was never payable in the first place.