Calculate novated lease repayments, FBT liability, and total tax savings for Australian salary packaging. Compare novated lease vs buying outright.
| Item | Value |
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A novated lease is a three-way agreement between you, your employer, and a finance company. Your employer makes lease payments from your pre-tax salary, reducing your taxable income. Running costs (fuel, insurance, servicing) can also be salary packaged.
FBT applies to novated leases. The ATO uses the Statutory Formula Method: taxable value = vehicle cost × 20% × days held/365. From 1 April 2025, eligible electric vehicles under the LCT threshold are exempt from FBT.
A novated lease is a three-way arrangement between you, your employer, and a finance/lease company. Your employer makes lease and running cost payments on your behalf from your pre-tax salary, reducing your taxable income. This salary sacrifice structure makes novated leasing particularly tax-effective — especially for electric vehicles which receive a full FBT exemption since April 2022.
Battery electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs through 31 March 2025) provided through novated leases below the luxury car threshold (~$76,950 for 2025-26) are completely exempt from FBT. This means the full lease and running costs come from pre-tax salary with no FBT liability — effectively giving high earners $6,000-$10,000+ per year in tax savings compared to buying the same EV personally.
| Scenario | Annual Lease + Running Cost | Tax Saving at 30% | Tax Saving at 37% |
|---|---|---|---|
| EV novated lease (FBT exempt) | $18,000 | $5,850/yr | $6,660/yr |
| Petrol vehicle (FBT applies) | $18,000 | Partially offset by FBT | Partially offset by FBT |
For petrol, diesel, and hybrid vehicles, Fringe Benefits Tax at 47% applies to the taxable value of the benefit using either the statutory formula method (20% of vehicle cost per year, regardless of private use) or operating cost method (based on actual private use proportion via a logbook). The FBT is either borne by the employer or passed back to you as additional pre-tax salary deduction (most common).
What is a novated lease in Australia?
A novated lease is a salary sacrifice arrangement where your employer pays for a car lease and running costs from your pre-tax salary on your behalf. This reduces your taxable income and therefore your income tax. The FBT rate is 47%, but for electric vehicles below the luxury car threshold, FBT is completely exempt — making EV novated leases especially tax-effective.
Are electric vehicles exempt from FBT on novated leases?
Yes. Battery electric vehicles (BEVs) provided through novated leases, where the vehicle cost is below the luxury car threshold ($76,950 for 2025-26), are exempt from FBT since 1 April 2022. This exemption does not apply to hydrogen fuel cell vehicles or standard plug-in hybrids (PHEV exemption ended 31 March 2025 for new leases). The EV exemption is one of the most significant tax benefits currently available to Australian employees.
What happens at the end of a novated lease?
At the end of the novated lease term (typically 3-5 years), you have several options: pay the residual value to own the vehicle outright; sell or trade the vehicle, using the proceeds toward the residual; or enter a new novated lease on a different vehicle. The residual value is set by the ATO (minimum percentages based on lease term) and represents the expected remaining value of the vehicle.
Can anyone get a novated lease in Australia?
You need to be an employee whose employer participates in salary packaging. Most government sector, large corporate, and healthcare employers offer novated leasing. Small business employers may not. Contractors and self-employed people cannot use novated leases as they are not employees. Check with your HR or payroll department to confirm your employer's salary packaging options.