EV Novated Leases: The FBT Exemption Is Changing
Many businesses offer staff a novated lease on an electric car. It comes with a big perk. No fringe benefits tax on the car at all.
That perk is now under review. Here is what every employer should know right now.
What the FBT Exemption Actually Does
Fringe benefits tax applies when an employer gives an employee a benefit on top of their wage. A company car is a classic example.
Normally, FBT adds a large cost. For an eligible electric car, that cost disappears completely. The saving can reach $9,000 a year for one vehicle.
This is why electric car novated leases became so popular. The employee gets a car. The employer pays no extra tax on it. Everyone wins.
Why This Is in the News Right Now
The exemption was meant to encourage more electric cars on the road. It worked, perhaps too well.
Treasury is now reviewing the scheme. The total cost has grown far past the original estimate. A change could be announced at any time.
This matters because the rules can shift quickly once a review like this starts. Waiting too long to act could mean missing the current, more generous version of the exemption.
What Already Changed for Hybrid Cars
One change has already landed. Plug-in hybrid vehicles lost their exemption from 1 April 2025.
Only fully electric and hydrogen vehicles still qualify. If a lease for a hybrid started before that date, it can sometimes keep the exemption. New hybrid leases cannot.
This is a useful warning sign. It shows how fast eligibility rules can move once policy attention turns to this area.
The Price Cap Still Applies
Not every electric car qualifies. The car must sit under the luxury car tax threshold for fuel-efficient vehicles.
For 2026-27, that threshold sits at $91,387. A car priced above this line does not get the exemption, no matter how efficient it is.
What This Means If You’re an Employer
If your business already offers novated leases, a quick review is worth doing now.
Check which leases are full battery electric, not hybrid. Check the purchase price sits under the current threshold. Confirm your payroll system is correctly excluding these vehicles from FBT calculations.
If you are thinking about adding this benefit, locking in a lease now generally preserves the exemption for that lease term, even if rules change later.
A Reporting Detail Many Employers Miss
Even with zero FBT payable, the benefit still needs to be reported. This is called a Reportable Fringe Benefits Amount.
It does not create a tax bill on its own. It can still affect other things. This includes HECS repayment calculations, the Medicare Levy Surcharge, and some government benefit assessments for the employee.
Skipping this report is a compliance gap, even though no FBT is actually owed.
What to Do Now
Review every current novated lease on your books. Confirm vehicle type and purchase price against current rules.
Check your payroll software correctly applies the exemption. Errors here are common and easy to miss.
Report the Reportable Fringe Benefits Amount correctly, even when no tax is payable on the benefit itself.
Watch for any announced change to the scheme. Acting before a change takes effect protects existing arrangements.
Frequently Asked Questions
Does the exemption apply to all electric cars? No. The car must be fully electric or hydrogen-powered, and priced under the luxury car tax threshold for fuel-efficient vehicles.
Are hybrid cars still exempt? Not for new leases. Plug-in hybrids lost eligibility for new arrangements from 1 April 2025.
Will this exemption definitely change? It is under active review. No confirmed change has been announced yet, but one could happen at any time.
Get Your Payroll Reviewed Talk to Edulink
Fringe benefits tax sits right alongside payroll, and getting it wrong is an easy, costly mistake.
Edulink Payroll Services manages payroll and compliance for small and medium businesses across greater Sydney and Campbelltown, with pricing from $750 per employee, per year.
Have more employees? Call us for a discounted rate.
📞 Call us today: 04 044 71 816
Edulink Payroll Services | Campbelltown & Greater Sydney | Call 04 044 71 816
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