EV Novated Lease Australia 2026: How the FBT Exemption Works, What You Will Actually Save, and Why the Budget Just Made Acting Before April 2027 Critical
Category: EV Finance & Novated Leasing | Read Time: 14 minutes | Updated: 1 June 2026 (post-budget)
FBT exemption status: Full exemption in force until 31 March 2027 | Phase-out begins: 1 April 2027
LCT threshold: $91,387 (2026/27) | Eligible vehicles: BEVs and FCEVs only | PHEVs: excluded since 1 April 2025
An electric vehicle financed through a novated lease is the single most tax-effective way for an Australian employee to buy a car in 2026. Nothing else comes close. The combination of the Fringe Benefits Tax exemption, pre-tax salary deductions, GST savings and lower running costs can deliver a total saving of $15,000 to over $40,000 across a typical lease compared to buying the same vehicle outright or financing it with a standard car loan.
The 2026-27 Federal Budget, delivered on 12 May 2026, confirmed that the full FBT exemption is being phased out. The window to lock in the maximum benefit is now explicitly defined: eligible EVs entering a novated lease before 1 April 2027 receive the full FBT exemption for the life of the lease. After that date, the benefit narrows. After April 2029, it drops permanently to a 25% discount.
This guide explains exactly how an EV novated lease works, shows you the real dollar savings at different salary levels, walks through the budget's three-phase timeline, lists every popular eligible model and its price, covers the traps (including RFBA, accessories and the LCT threshold), and explains when a novated lease is not the right choice. We are an independent broker. We compare novated lease options across our panel and also arrange standard car loans and chattel mortgages. If a novated lease is not the right fit, we will tell you.
How an EV Novated Lease Works
A novated lease is a three-way agreement between you (the employee), your employer and a finance company. The finance company buys the vehicle. Your employer deducts the lease payments and running costs from your gross salary before tax. Because the deductions come from your pre-tax income, your taxable income falls, and you pay less income tax and Medicare levy.
For any vehicle, this pre-tax salary deduction delivers an income tax saving. But for most petrol and diesel vehicles, the benefit is partly offset by Fringe Benefits Tax. FBT is a tax your employer pays on non-cash benefits (like the personal use of a vehicle), and this cost is typically passed back to you through a post-tax contribution under the Employee Contribution Method. That post-tax contribution eats into your saving.
For eligible electric vehicles, the FBT exemption removes this offset entirely. No FBT is payable. No post-tax contribution is required. The entire vehicle cost, including lease payments, registration, comprehensive insurance, servicing, tyres and electricity, is paid from your pre-tax salary. Every dollar you sacrifice comes from gross income, not net income. The higher your marginal tax rate, the larger the saving.
What You Will Actually Save: Worked Examples
The total saving from an EV novated lease comes from four sources stacked on top of each other: the FBT exemption (no post-tax contribution), the income tax reduction (pre-tax salary sacrifice), the GST saving (approximately 9.1% off the vehicle and running costs), and lower running costs (electricity vs petrol or diesel).
Example 1: $55,000 EV on a $100,000 Salary
On a salary of $100,000, your marginal tax rate (including the 2% Medicare levy) is 34.5%. A $55,000 EV on a 5-year novated lease with bundled running costs of approximately $4,500 per year results in a total annual salary sacrifice of approximately $16,000 to $18,000. At a 34.5% marginal rate, the income tax saving alone is approximately $5,500 to $6,200 per year. The GST saving on the vehicle and running costs adds approximately $1,400 per year. The FBT exemption saves an additional $3,000 to $4,000 per year compared to a petrol vehicle where the post-tax ECM contribution would be required. Total annual saving: approximately $10,000 to $11,500 compared to buying the same vehicle outright from after-tax income. Over a 5-year lease, the total benefit is approximately $50,000 to $57,000.
Example 2: $45,000 EV on a $85,000 Salary
On a salary of $85,000, your marginal rate is 34.5%. A more affordable EV like the BYD Atto 3 at approximately $40,000 to $45,000 on a 3-year lease results in a total annual sacrifice of approximately $18,000 to $20,000 (higher per year because of the shorter term). Income tax saving: approximately $6,200 to $6,900 per year. GST saving: approximately $1,100 per year. FBT saving: approximately $2,500 to $3,500 per year. Total annual saving: approximately $9,800 to $11,500. Over the 3-year lease, total benefit of approximately $29,000 to $35,000.
Example 3: $70,000 EV on a $150,000 Salary
On a salary of $150,000, your marginal rate is 39% (including Medicare levy). A Tesla Model Y or BYD Sealion 7 at approximately $60,000 to $70,000 on a 4-year lease results in a total annual sacrifice of approximately $22,000 to $25,000. Income tax saving: approximately $8,500 to $9,750 per year. GST saving: approximately $1,800 per year. FBT saving: approximately $4,500 to $6,000 per year. Total annual saving: approximately $14,800 to $17,500. Over the 4-year lease, total benefit of approximately $59,000 to $70,000. At higher salaries, the saving grows further because every dollar sacrificed avoids a higher marginal tax rate.
These figures are illustrative and will vary based on the specific lease provider's fees, interest rate, residual value and running cost estimates. The point is the scale of the benefit: an EV novated lease is not a marginal saving. It is a five-figure financial advantage over the life of the lease compared to any other way of paying for the same vehicle.
The Budget Just Changed the Timeline: The Three-Phase FBT Wind-Down
The 2026-27 Federal Budget, delivered on 12 May 2026, confirmed that the full FBT exemption on electric vehicles is being phased out. The changes are structured across three phases. Existing leases are grandfathered throughout.
Phase 1: Now Until 31 March 2027
No change. The full FBT exemption continues exactly as it is today for all eligible BEVs and FCEVs priced below the LCT threshold ($91,387 for 2026/27). If you enter a novated lease before 1 April 2027, the full exemption applies for the entire life of that lease, regardless of what happens afterward. This is the window that delivers the maximum financial benefit and the one that matters most.
Phase 2: 1 April 2027 to 31 March 2029
The full FBT exemption continues for eligible EVs costing $75,000 or less. For EVs priced between $75,001 and the LCT threshold, the full exemption is replaced with a 25% FBT discount (a 15% statutory rate instead of the standard 20%). Leases that commence during Phase 2 on vehicles at $75,000 or below still lock in the full exemption for the entire lease term.
Phase 3: From 1 April 2029
No new EV novated lease receives the full FBT exemption, regardless of vehicle price. All eligible EVs below the LCT threshold receive a permanent 25% FBT discount (15% statutory rate vs the standard 20%). This is still a meaningful benefit compared to a petrol vehicle, but the saving is substantially reduced. For a top-bracket earner on an $80,000 EV, the transition from full exemption to the 25% discount adds over $8,000 per year in out-of-pocket costs.
What This Means in Plain English
If you are considering an EV novated lease, the financial case for starting the lease before 1 April 2027 is now explicit. A lease entered before that date locks in the full FBT exemption, potentially saving you $15,000 to $25,000 more over the life of the lease compared to an identical lease entered after 2029. For premium EVs above $75,000, the window closes sooner: 1 April 2027. For EVs at $75,000 or below, you have until 1 April 2029 to get the full exemption, but starting earlier still locks it in for a longer total period. For a full breakdown of every budget measure, see our Federal Budget 2026-27 guide.
Eligible Electric Vehicles and Prices (May 2026)
The range of eligible EVs in Australia has never been broader. There are now 12 electric vehicles priced below $40,000, two of them under $30,000. Every model listed below is a full battery electric vehicle (BEV) priced below the $91,387 LCT threshold in its standard configuration, making it eligible for the FBT exemption through a novated lease.
Under $35,000
BYD Atto 1 from $23,990 before on-road costs (the cheapest EV in Australia). BYD Dolphin from $29,990. BYD Atto 2 from $31,990. MG4 Urban from $34,990.
$35,000 to $50,000
Chery E5 from $36,990. BYD Atto 3 from $39,990. Geely EX5 from $40,990. GWM Ora from approximately $35,000. Kia EV3 from approximately $44,000.
$50,000 to $75,000
Kia EV5 from approximately $50,000 before on-road costs. Tesla Model 3 from approximately $55,000 before on-road costs. BYD Seal from approximately $49,000. Tesla Model Y from approximately $60,300 before on-road costs. BYD Sealion 7 from approximately $53,000 before on-road costs. Hyundai Ioniq 5 from approximately $55,000. Kia EV6 from approximately $58,000. Polestar 2 from approximately $59,000.
$75,000 to $91,387 (Phase 2 Affected)
Tesla Model Y Performance from approximately $80,000. Hyundai Ioniq 5 N from approximately $85,000. BMW iX1 from approximately $76,000. Volvo EX40 from approximately $76,000. These vehicles still qualify for the full FBT exemption if the lease commences before 1 April 2027. From April 2027, they receive only the 25% discount.
For all EV finance options including novated leases, chattel mortgages and standard car loans, see our EV loans page.
The Five Traps That Can Catch You
Trap 1: Accessories Pushing You Over the LCT Threshold
The $91,387 threshold is calculated on the vehicle's value at first retail sale, including GST, dealer delivery, standard warranties and any accessories or modifications applied before delivery. Premium paint, larger wheels, tinted windows, floor mats and roof racks added before delivery are included. If these additions push the total above $91,387, the vehicle loses the FBT exemption entirely and cannot regain it even if the value subsequently drops below the threshold. If your vehicle sits close to the limit, confirm the total LCT value including every pre-delivery addition before committing.
Trap 2: Reportable Fringe Benefits Amount (RFBA)
Even though no FBT is payable on an eligible EV, the notional value of the benefit is still classified as a reportable fringe benefit amount (RFBA) on your income statement. The RFBA is added to your income when calculating certain government obligations: HECS-HELP repayment thresholds (you may be required to make repayments at a lower income than without the novated lease), Family Tax Benefit calculations, the Medicare Levy Surcharge assessment, child support obligations, and other income-tested benefits. The RFBA does not reduce the financial advantage of the novated lease in most cases, but it can create unexpected liabilities if you are not aware of it. We model the RFBA impact for your specific situation before you commit.
Trap 3: PHEVs Do Not Qualify
Plug-in hybrid electric vehicles lost FBT exemption eligibility from 1 April 2025. New novated leases on PHEVs entered after that date attract full FBT. This includes popular models like the BYD Shark 6, Ford Ranger PHEV and Mitsubishi Outlander PHEV. Only full battery electric vehicles (BEVs) and hydrogen fuel cell vehicles (FCEVs) qualify. The budget did not reinstate PHEVs.
Trap 4: Your Employer Must Agree
A novated lease requires your employer to facilitate salary packaging. Most large employers, government departments, hospitals, universities and major corporations already offer this. Some smaller employers do not have salary packaging in place but can set it up through a novated lease provider. If your employer does not offer salary packaging and is not willing to set it up, a novated lease is not available to you. A standard car loan or personal loan may be the better option.
Trap 5: The Novated Lease Is Not Always Cheaper
For employees on lower salaries (under approximately $60,000 to $65,000), the income tax saving from pre-tax salary sacrifice is smaller because the marginal tax rate is lower. In some cases, the novated lease provider's management fees, tyre fees, fuel card fees and insurance margins can offset the tax saving, making a novated lease no cheaper than simply buying the car with a car loan and paying for running costs separately. We model the full comparison for your specific salary, vehicle and lease term before you commit. If a novated lease does not save you money, we will tell you and suggest the structure that does.
EV Novated Lease vs Car Loan vs Chattel Mortgage
EV Novated Lease
Best for: employees whose employer offers salary packaging, buying an eligible BEV under the LCT threshold. Payments from pre-tax salary. Running costs bundled. FBT exempt (currently, with phase-out from April 2027/2029). GST not payable. Strongest financial outcome at marginal rates of 32.5% and above. Not available to self-employed. Full details on our novated lease page.
Standard Car Loan
Best for: personal buyers, self-employed, employees without salary packaging. Fixed rate, fixed term. No tax benefits for personal use. Simplest structure. No employer involvement required. New car loans and used car loans available.
Chattel Mortgage
Best for: business owners and ABN holders buying an EV for business use. Own the vehicle from day one. Claim GST, depreciation, interest deduction. No FBT exemption (that is a novated lease benefit, not a chattel mortgage benefit). The right structure for self-employed EV buyers. Full details on our chattel mortgage page.
How to Get Started
First, confirm with your employer's HR or payroll team that salary packaging is available. Most medium and large employers offer it as a standard benefit.
Second, choose your vehicle. Any BEV or FCEV under the $91,387 LCT threshold qualifies. We can help you understand which models are available and eligible. The cheapest eligible EV in Australia is the BYD Atto 1 from $23,990 before on-road costs. The most popular is the Tesla Model Y from approximately $60,300.
Third, contact us. We compare novated lease options across our panel and model the actual savings for your specific salary, vehicle choice and lease term. We present the comparison against a standard car loan so you can see whether a novated lease genuinely saves you money in your situation. If it does not, we tell you.
Fourth, we coordinate with your employer's payroll team, manage the application through to settlement, and ensure the salary deductions are set up correctly.
The entire process from initial conversation to first salary deduction typically takes 2 to 4 weeks.
Lock In the Full FBT Exemption Before It Narrows
The budget confirmed the full EV FBT exemption is being phased out from April 2027. Any eligible EV entering a novated lease before that date locks in the full exemption for the life of the lease. We compare across 50+ lenders, model the real savings for your salary and vehicle, and manage the full process.
Independent broker. Not a novated lease company. No products of our own. We compare the market and work for you.
Book a Free Call | Call 1300 194 926 | Email info@australianfinanceloans.com
Frequently Asked Questions
How much can I save with an EV novated lease?
The total saving depends on your salary, the vehicle price and the lease term. As a general guide, an employee earning $100,000 per year packaging a $55,000 EV on a 5-year lease can save approximately $10,000 to $11,500 per year in combined FBT, income tax, GST and running cost savings. Over the lease, the total benefit is $50,000 to $57,000 compared to purchasing the same vehicle outright from after-tax income. At higher salaries and vehicle prices, the saving increases further.
Is the EV FBT exemption being scrapped?
It is being phased out, not scrapped immediately. The 2026-27 Federal Budget confirmed the full FBT exemption continues until 31 March 2027 for all eligible EVs. From April 2027 to March 2029, the full exemption continues for EVs at $75,000 or less, with a 25% discount for EVs above $75,000. From April 2029, all EVs receive only the 25% discount. Existing leases are grandfathered. If you lock in a lease before the relevant phase cutoff, the full exemption applies for the life of that lease.
Which electric vehicles qualify for the FBT exemption?
Any full battery electric vehicle (BEV) or hydrogen fuel cell vehicle (FCEV) priced below the luxury car tax threshold for fuel-efficient vehicles ($91,387 for 2026/27), first held and used on or after 1 July 2022. Plug-in hybrids (PHEVs) do not qualify for new leases entered after 1 April 2025. The vehicle must be a passenger car carrying fewer than 9 passengers and less than one tonne.
Can I get a novated lease if I am self-employed?
No. A novated lease requires an employer-employee relationship with salary packaging. Self-employed individuals, sole traders and ABN holders should consider a chattel mortgage instead, which provides GST, depreciation and interest deductions for business-use EVs.
What happens if I change jobs during the lease?
The lease stays with you. Your new employer can novate (take over the salary deductions). If your new employer does not offer salary packaging, you take over the payments personally until you find an employer who does. The vehicle remains yours throughout. The FBT exemption status that applied when the lease commenced continues regardless of job changes.
What is the RFBA and will it affect me?
The reportable fringe benefit amount (RFBA) appears on your income statement even though no FBT is paid. It can affect HECS-HELP repayment thresholds, Family Tax Benefit calculations, Medicare Levy Surcharge assessments and child support obligations. It does not change the overall financial advantage of the novated lease in most cases, but it should be modelled before committing. We include the RFBA impact in our savings comparison.
What is the cheapest EV I can novated lease?
The cheapest new EV in Australia is the BYD Atto 1 from $23,990 before on-road costs. The cheapest electric SUV is the BYD Atto 2 from $31,990. There are now 12 EVs priced below $40,000 and two below $30,000. All qualify for the full FBT exemption through a novated lease.
Can I include running costs in the novated lease?
Yes. Registration, comprehensive insurance, servicing, tyres and electricity are bundled into the lease and deducted from your pre-tax salary. Running costs are estimated at the start of the lease and reconciled at the end of each FBT year (31 March). If actual costs were lower, the surplus is refunded or carried forward. If costs were higher, the shortfall is collected.
Is a novated lease always cheaper than a car loan for an EV?
Not always. For employees on lower salaries (under approximately $60,000 to $65,000), the income tax saving from salary sacrifice is smaller and the novated lease provider's fees can offset the benefit. We model both options for your specific situation and only recommend a novated lease if it genuinely delivers a better financial outcome.
How long does it take to set up an EV novated lease?
From initial conversation to first salary deduction is typically 2 to 4 weeks, including employer payroll setup. Finance approval takes 5 to 10 business days for most applications. If you want to lock in the full FBT exemption before 1 April 2027, you have approximately 10 months from the date of this article, but vehicle availability, employer processing times and end-of-year demand mean starting sooner is strongly recommended.
Why Choose Australian Finance & Loans
We are an independent broker, not a novated lease company. We do not sell our own novated lease product. We compare options across our panel of 50+ lenders and novated lease providers and recommend the one that delivers the best outcome for your situation.
If a novated lease does not save you money, we will tell you and arrange a standard car loan or chattel mortgage instead. One broker, every option.
