What is an EV novated lease?

A novated lease lets you pay for a car and its running costs using pre-tax salary, reducing your taxable income. When you choose an electric vehicle, you get an extra layer of benefit: the Australian Government's Electric Car Discount exempts eligible EVs from Fringe Benefits Tax (FBT) entirely.

In practical terms, this means the entire salary sacrifice — finance repayments plus all running costs — comes from your pre-tax income with no offsetting post-tax contribution required. For petrol cars, you would normally need to make post-tax Employee Contribution Method (ECM) payments to bring FBT to zero. With an eligible EV, that step disappears. Every dollar you sacrifice reduces your taxable income with nothing taken back — this is why the numbers look so compelling for eligible EVs.

How the FBT exemption works

Under the Treasury Laws Amendment (Electric Car Discount) Act 2022, battery electric vehicles (BEVs) and hydrogen fuel cell vehicles are exempt from FBT when all of the following apply:

The vehicle is a zero-emission BEV or hydrogen fuel cell vehicle
It was first held and used on or after 1 July 2022
The vehicle's value is at or below the luxury car tax threshold for fuel-efficient vehicles ($91,387 for 2025–26)
It is provided under a novated lease salary packaging arrangement

To understand why this matters, consider the alternative. Without the FBT exemption, your employer must account for FBT on the car benefit using the Statutory Formula Method: 20% of the car's GST-inclusive price, grossed up by 1.8868, taxed at 47%. On a $62,000 car that's roughly $11,002 of taxable fringe benefit — and if left unmanaged, this liability would flow back to you as a post-tax obligation through ECM. The exemption eliminates this entirely for eligible EVs.

The key number: Without an EV, you need to make post-tax ECM contributions of approximately 20% of the car's value per year to offset FBT. On a $62,000 car that's ~$12,400/yr in post-tax contributions you avoid entirely with an eligible EV. Over a 3-year lease, that's $37,200 in post-tax dollars that you never have to spend.

What changed from 1 April 2025 — PHEVs excluded

Plug-in hybrid vehicles (PHEVs) were included in the FBT exemption until 31 March 2025. From 1 April 2025, new PHEV novated lease agreements no longer qualify — PHEVs are now treated identically to petrol vehicles for FBT purposes.

If you are currently on an existing PHEV lease that started before 1 April 2025, you retain the exemption for the remainder of that lease's term — the change only affects new arrangements from that date. But if you are considering a new lease and were thinking about a PHEV, the calculus has changed significantly. A Toyota RAV4 PHEV or similar now requires full ECM post-tax contributions, which reduces the financial advantage substantially compared to a pure BEV.

The practical effect: anyone comparing a PHEV against a BEV for a new lease from mid-2025 onward should model both with current rules, not the older exemption that applied to PHEVs. The gap between a comparable BEV and PHEV in total cost over 3 years has widened by $20,000–$35,000 for most salary brackets.

Real savings by salary bracket — $62,000 EV, 3-year lease

Here is how the annual tax and GST saving varies across salary brackets for a $62,000 EV (e.g. BYD Sealion 7 or Tesla Model 3) leased over 3 years at 7.5% p.a. Running costs estimated at $7,000/year.

Gross salaryAnnual tax savingGST saving (yr 1)Year 1 total benefit

$65,000~$6,020$5,636~$11,656

$95,000~$6,540$5,636~$12,176

$120,000~$7,700$5,636~$13,336

$160,000~$9,100$5,636~$14,736

$200,000~$10,080$5,636~$15,716

The GST saving in year one is fixed — it is always 1/11th of the car's price regardless of salary. The income tax saving scales with your marginal rate. At $95,000 (30% bracket) you save roughly $6,540/year in income tax. At $160,000 (37% bracket) the same lease saves $9,100/year. Use our calculator for a precise figure based on your exact salary, car price, and lease term.

EV vs petrol on a novated lease — the complete cost picture

The FBT exemption is only part of the EV advantage. Running costs are dramatically lower. At current fuel prices of around $2.40/litre, a typical petrol car costs $3,240/year to fuel for 15,000 km/year. The equivalent EV costs around $525/year to charge at home — a saving of over $2,700/year on fuel alone.

Cost item$62k petrol car$62k EV (FBT exempt)

Finance cost/yr~$15,600~$15,600

Post-tax ECM req.~$12,400$0

Fuel / charging/yr~$3,240~$525

Servicing/yr~$800~$400

Total annual cost~$32,040~$16,525

5-year saving (EV)—~$77,575

Note: the above comparison is at $95,000 salary with a 3-year lease. The post-tax ECM requirement is the single biggest cost difference between leasing a petrol vs EV — it can exceed the finance cost itself on more expensive vehicles. At a $120,000+ salary, eliminating ECM has an even larger after-tax impact because those post-tax dollars come from a higher marginal rate.

Choosing your EV — key decision factors

All qualifying EVs under the $91,387 LCT threshold get the same FBT treatment, so the financial mechanism is identical across models. The differences that matter come down to price point, battery chemistry, range, and charging network access. A comprehensive model-by-model comparison — covering the BYD Atto 3, Tesla Model 3, BYD Sealion 7, Zeekr 7X, Kia EV5, and Tesla Model Y — is available in our hub guide:

Best EV for a novated lease in Australia 2025–26

Full deep-dive: real costs, battery chemistry, charging network, who each model suits — 6 models compared

Compare all 6 →

When narrowing your choice, four factors drive most of the decision:

1. Purchase price and monthly sacrifice

A lower price means lower fortnightly deductions. The BYD Atto 3 at $44,990 has noticeably smaller pre-tax payments than a Tesla Model Y at $65,900 — but both get the same FBT exemption. The right price point depends on your budget and how much salary you can sacrifice without affecting your take-home pay too severely.

2. Battery chemistry (LFP vs NMC)

BYD vehicles use Lithium Iron Phosphate (LFP) batteries — safer, longer-lasting, and capable of 100% regular charging without significant degradation. Most Teslas and non-BYD EVs use Nickel Manganese Cobalt (NMC) chemistry — faster charging and better energy density, but charge to 80–90% daily for longevity. Over a 3-year lease, this distinction is largely academic; over 5 years it matters more.

3. Charging network access

Tesla's Supercharger network covers Australia well and is generally regarded as the most reliable fast-charging option for long trips. Other EVs rely on third-party networks (Chargefox, Evie, BP Pulse) which have gaps in regional areas. If you regularly drive long distances between major cities, Tesla's network is a genuine advantage. For primarily metropolitan use, the difference is negligible.

4. Range and real-world usability

WLTP range figures are measured under idealised conditions. Real-world range at highway speeds, in winter, with air conditioning running, is typically 15–25% lower. If your regular commute is under 100 km daily and you have home charging, range anxiety is rarely a practical issue. For weekly long-distance travel, prioritise range and charging speed.

Practical considerations before you commit

Home charging is almost essential

The economics of EV running costs assume primarily home charging at off-peak electricity rates ($0.08–$0.25/kWh depending on your plan and state). Public fast charging typically costs $0.40–$0.65/kWh — three to eight times more expensive. Without home charging access, your effective running cost advantage over petrol narrows significantly. Before committing to an EV novated lease, confirm you can either install a charger at your home, or that your workplace or apartment building offers charging.

Note: the home charger hardware and installation cost (~$800–$2,500) cannot be included in your novated lease running cost budget. It is a home improvement, not a vehicle running cost. You can, however, claim the ongoing electricity cost of charging.

Insurance runs slightly higher for EVs

EV comprehensive insurance premiums are currently 10–20% higher than equivalent petrol vehicles in Australia. This reflects repair costs (specialised technicians, imported parts) and the relative novelty of the vehicles for insurers. The gap is narrowing as service networks expand, but factor this into your running cost budget. Most novated lease providers will give you an insurance quote as part of the lease setup — compare it against direct quotes.

The RFBA and HECS/HELP interaction

Even though FBT-exempt EVs have no FBT payable, the grossed-up value of the benefit is still recorded as a Reportable Fringe Benefits Amount (RFBA) on your income statement. The RFBA is not taxed — but it is included when calculating your "income for surcharge purposes," which affects HECS/HELP repayment thresholds, Medicare Levy Surcharge income tests, and Division 293 contributions tax for high earners.

For most employees, this has minimal practical effect. But if you are close to a HECS repayment threshold or carry significant student debt, the grossed-up RFBA from a large EV lease can push you into a higher repayment band. Worth checking before finalising a lease on a vehicle near the top of the price range.

RFBA example: A $62,000 EV lease with ~$21,800 in annual salary sacrifice has a grossed-up RFBA of approximately $41,400. This amount appears on your tax summary and is added to your income when calculating HECS repayments — even though you pay no FBT. If your taxable income is $83,000, adding $41,400 RFBA gives an income for surcharge purposes of $124,400, which sits in a higher HECS repayment band.

Policy risk — the FBT exemption is not permanent

The Electric Car Discount Act is existing legislation, but there is no guarantee it will continue indefinitely. Government policy can change with budget cycles. A 5-year lease entered in 2026 ends in 2031 — it is reasonable to expect the policy will still be in place, but not certain. This is one reason most financial advisers recommend a 3-year term for EV leases: it gives you an exit point if the tax environment changes, while still capturing enough years of savings to justify the setup.

How to set up an EV novated lease

The process is more straightforward than most people expect. Here is a step-by-step walkthrough:

Confirm your employer participates

Most medium and large employers in Australia offer salary packaging. Check with HR or payroll — they will confirm whether a novated lease is available and whether they have a preferred provider or panel.

Choose your EV and get a drive-away price

Select a vehicle under the $91,387 LCT threshold. Get a formal drive-away quote from a dealer — this is the price your novated lease provider will use to structure the finance. Drive-away includes on-road costs (rego, CTP, dealer delivery), so use this figure, not the advertised price.

Get quotes from 2–3 providers

Contact 2–3 novated lease providers and request a full quote including the interest rate, administration fees, and running cost budget breakdown. Do not sign based on a verbal "monthly payment" figure — request the full cost disclosure document. The interest rate and admin fees can vary significantly between providers on the same vehicle.

Set your running cost budget accurately

Your provider will estimate annual running costs based on your expected km. Review their estimate line by line. Electricity costs for home charging, rego, insurance, servicing, and tyres all go in here. An accurate budget means less chance of a post-tax top-up bill or a taxed cash surplus at year end.

Sign the lease documentation

Your provider coordinates a Deed of Novation with your employer. Your employer signs to confirm they will make the salary deductions. Once signed, deductions appear in your payslip, typically starting the following pay cycle.

Frequently asked questions

Which EVs qualify for the FBT exemption in 2025–26?

Any battery electric vehicle (BEV) or hydrogen fuel cell vehicle priced at or below $91,387 (the 2025–26 LCT threshold for fuel-efficient vehicles) that was first held and used on or after 1 July 2022. Popular qualifying models include the BYD Atto 3 ($44,990), Tesla Model 3 ($56,900), BYD Sealion 7 ($54,990), Tesla Model Y ($65,900), and Zeekr 7X ($59,990). Plug-in hybrids (PHEVs) no longer qualify for new leases from 1 April 2025.

What happens if the FBT exemption is removed mid-lease?

If the Government removes or changes the EV FBT exemption, the change would typically apply to new leases from a future date — existing leases are generally "grandfathered" under the rules that applied when they were signed. This has been the approach for previous FBT changes and was explicitly the case for PHEVs (existing leases before April 2025 retained their exemption). There is no guarantee this would always be the case, but it provides some comfort for people already in a lease.

Can I claim home EV charging costs in my novated lease?

Yes. The electricity cost of charging your EV at home can be included in your running cost budget as part of the pre-tax salary sacrifice. The home charger unit and installation cost cannot — that is a home improvement. Your provider will either use a flat cents-per-km rate or ask you to submit quarterly electricity bills. Public charging costs (Supercharger, Chargefox, etc.) can also be included. Get clarity on your provider's preferred method at setup.

Does the EV FBT exemption affect my HECS/HELP repayments?

Potentially, yes. Even though no FBT is payable, the grossed-up value of the benefit appears as a Reportable Fringe Benefits Amount (RFBA) on your income statement. This figure is added to your taxable income when calculating your income for HECS/HELP repayment purposes — so a large EV lease can push you into a higher HECS repayment band. If you have significant student debt, model this before signing. For most employees with moderate debt, the effect is minor relative to the tax saving.

When does an EV novated lease NOT make sense?

An EV novated lease is not right for everyone. It is less suitable if: your employer does not offer salary packaging; your income is below $45,000 (the 16% marginal rate makes the tax saving small); you have no access to home or workplace charging and would rely on public charging exclusively; you regularly drive long distances in areas with poor fast-charging coverage; or you are in a contract or casual role with a realistic chance of losing employer access within the next 1–2 years. In any of these situations, a car loan or standard purchase may offer better value and flexibility.

EV novated lease Australia 2025–26 — the complete guide