Electric car novated lease

The worked example

A $55,000 electric car on a $100,000 salary: the package of about $14,720 a year is all pre-tax, saving about $4,710 in tax and Medicare levy, so the car costs about $385 a fortnight of take-home pay including all running costs. The reportable fringe benefit is 20% of $55,000 = $11,000, grossed up at 1.8868: $20,755 on the income statement.

Worked figures come from this calculator with: 2026-27 tax rates and Medicare levy, a five-year lease at 8.5% interest, the ATO minimum residual (28.13%), a $500 establishment fee and $15 monthly fee, $3,500 on-road costs, 15,000 km a year, NSW registration of $1,100 and insurance of $1,500, paid fortnightly. Your provider's rate and fees will differ; change them in the calculator.

The reportable benefit's side effects

The exemption removes FBT, but the law still requires your employer to report the benefit. That amount is added back for several income tests:

• HELP repayments: repayment income includes reportable fringe benefits. In the example with a HELP debt, the repayment rises from $4,571 to $5,476 a year: lower taxable income is more than offset by the $20,755 reported benefit. See novated leases and HELP.
• Medicare levy surcharge: income for MLS purposes includes reportable fringe benefits. If you have no private hospital cover and the reported amount takes you over the threshold ($105,000 for singles in 2026-27, reported), you could pay the surcharge.
• Private health insurance rebate: the rebate tier uses the same income definition.
• Family payments and child support: Services Australia's income tests generally include reportable fringe benefits; check your situation.
• Super co-contribution and other tests may also use it.

For most people the tax saving outweighs these effects, but check them, especially if you are near a threshold.

Eligibility in detail

• The car is a zero or low emissions vehicle: battery electric or hydrogen fuel cell, carrying under one tonne and fewer than nine passengers.
• It is first both held and used on or after 1 July 2022, which any new car is.
• Luxury car tax has never been payable on it: its value at first retail sale was below the fuel-efficient threshold. A used EV that cost more when new is not eligible.
• It is used by a current employee or their associates.

Plug-in hybrids

Plug-in hybrids stopped counting as zero or low emissions vehicles on 1 April 2025. A PHEV already exempt before then keeps the exemption while the same binding commitment continues; changing the lease (payments, residual, employer) ends it. Tick the plug-in hybrid option and the grandfathering box in the calculator if that applies to you.

What is changing

The ATO says the government will review the exemption by mid-2027. Reports of the 2026-27 Budget describe a permanent 25% FBT discount replacing the full exemption: from 1 April 2027 for electric cars over $75,000 and from 1 April 2029 for all, with arrangements in place before then unaffected. This calculator models the law as it stood when checked. If you are signing close to 1 April 2027 with a car over $75,000, ask your provider how the change would apply.

What providers don't show, and how to read a quote

• The interest rate. Many quotes show only a weekly or fortnightly deduction. Ask for the interest rate, the amount financed and the residual in writing; with those, this calculator reproduces the lease payment.
• Fees. Establishment fees, monthly management fees and "budget" fees for running costs add up over five years. Enter them all.
• Running-cost budgets. Quotes often include generous fuel, tyre and servicing budgets that inflate the per-pay deduction. Unspent budgets are usually returned, but check how and when.
• Insurance and extras. Gap insurance, extended warranties and paint protection are often bundled. They are optional.
• The residual. It must be at least the ATO minimum for the term. A higher residual lowers your deductions but leaves more to pay at the end.
• Discounts on the car. Providers negotiate fleet prices, but compare the drive-away price with what a dealer would offer you directly.

How a novated lease works

A novated lease is a three-way agreement between you, your employer and a finance company. The finance company leases you a car; your employer agrees to make the payments out of your salary for as long as you work there. Your employer also pays the running costs (fuel or charging, registration, insurance, servicing and tyres) from the same budget. Because these come out of your pay before tax, your taxable income falls, and because your employer is registered for GST, it claims back the GST on the car and its running costs. At the end of the lease you pay a lump sum, the residual, to own the car, or you refinance or sell it.

The catch is fringe benefits tax (FBT). A car your employer pays for is a fringe benefit. For petrol and hybrid cars, providers cancel the FBT by having you pay part of the cost out of your after-tax pay: the employee contribution method (ECM). For eligible electric cars there is no FBT at all, so the whole cost can come out of pre-tax pay. That is why novated leases have become popular for electric cars.