EV Novated Leases and the FBT Exemption: How to Buy an Electric Car for Less

Three members of our team have bought an electric car through a novated lease this year, so we have watched the numbers up close. For an eligible EV it is one of the larger savings still available to everyday Australians, and it can make going electric cheaper than many people expect. The reason is a fringe benefits tax exemption that lets you pay for the car, and run it, from your pre-tax salary.

Novated leasing is not new, and neither is salary packaging a car. What changed is that since July 2022, eligible electric cars have been exempt from FBT, which removes the tax that normally claws back most of the benefit. Below is how it works, which cars qualify, a worked example of the saving, and one detail that is easy to miss: once the car is in your driveway, the cheapest way to fuel it is off your own roof.

What a novated lease actually is

A novated lease is a three-way arrangement between you, your employer and a finance provider. Your employer agrees to take the lease payments from your salary and pass them to the provider on your behalf. You use the car for whatever you like, private driving included, and if you change jobs the lease travels with you. The payments usually bundle the finance on the car together with its running costs, such as insurance, registration, servicing, tyres and charging, into one regular deduction, so the car becomes close to a fixed monthly cost.

On a conventional petrol or diesel car, part of that deduction has to come from your after-tax pay. The private use of a salary-packaged car normally attracts FBT, and the usual way to cancel out the FBT is to contribute some post-tax money. The electric car exemption is what changes the maths.

Why the FBT exemption makes an EV the one to lease

Since 1 July 2022, the private use of an eligible electric car provided through your employer has been exempt from FBT. In plain terms, the tax that normally offsets the benefit of a salary-packaged car simply does not apply. That means the entire lease, finance and running costs alike, can be paid from your salary before income tax is worked out, with no post-tax contribution needed to balance an FBT bill.

The exemption even extends to the electricity used to charge the car. The effect is a lower taxable income, which is where the saving comes from, plus the GST your employer can claim back on the purchase price and the running costs. For many people that adds up to thousands of dollars a year on a car they were going to buy anyway.

Which cars qualify

Not every car badged “electric” counts, and this is the part worth getting right before you settle on a particular model. To be eligible, the car must:

• be a battery electric vehicle or a hydrogen fuel cell vehicle. Plug-in hybrids stopped qualifying on 1 April 2025.
• have been first held and used on or after 1 July 2022, which covers essentially any new EV on sale today.
• have a value below the luxury car tax threshold for fuel-efficient vehicles, currently $91,387 and rising to $91,661 from 1 July 2026.
• never have had luxury car tax payable on it.

Most popular EVs sold in Australia sit comfortably under that price cap, so for the majority of buyers the threshold is not the obstacle it sounds. Used EVs can qualify too, as long as the car first entered service after 1 July 2022 and met the price test when it was first sold new.

A worked example

Numbers make this clearer, so here is an illustration. Treat it as a rough guide only, not advice, because the real figure depends on your salary, the car and the lease terms.

Suppose you earn $95,000 a year and lease an eligible EV priced at about $55,000. The full novated package, finance plus all running costs, comes to roughly $17,000 a year. Because the car is exempt from FBT, that entire amount is taken from your salary before income tax. At a marginal rate of 32 per cent, including the Medicare levy, that lowers your income tax by around $5,400 in the first year. On top of that, you avoid GST on the purchase price and on the running costs, because your provider claims it back.

Over a five-year lease, the income tax saving alone can run into the tens of thousands, before you count the difference in fuel. The same package on a petrol car would force part of that $17,000 back into after-tax dollars, which is exactly the gap the exemption closes.

Two caveats worth stating plainly. First, although no FBT is payable, the benefit is still recorded as a reportable fringe benefit on your income statement. It does not cost you tax directly, but it can affect things that are means-tested on your adjusted taxable income, such as HELP or HECS repayments, the Medicare levy surcharge, the private health rebate and some family payments. Second, a novated lease has a residual (or balloon) payment owing at the end, and provider fees apply. For most people none of this cancels the saving, but it is why you should run your own figures with the lease provider and, ideally, an accountant before signing.

The window is narrowing

The exemption is being wound back, which is why “this year” carries weight. The federal government confirmed a staged change in 2026, moving the concession from a full exemption towards a partial discount over the rest of the decade.

The detail that matters most is grandfathering. If you enter a lease while the full exemption applies, you keep that treatment for the life of that lease, even as the rules change around you. It is the same approach the government took when it removed plug-in hybrids in 2025. In practice, a lease signed now can hold the full benefit well into the next decade.

The other half of the saving: fuel it from your roof

A novated lease handles the cost of the car. What it does not change is how you fuel it, and this is where an EV pulls away from petrol. A typical electric car uses around 16 to 18 kilowatt-hours to travel 100km. Charged overnight on a cheap home tariff, that works out to roughly $2 to $6 per 100km. On public fast chargers it is more, around $6 to $11. On petrol, the same 100km is commonly $15 or more.

Charge from your own rooftop solar and the cost falls further still, close to nothing, because you are using power you have already generated rather than buying it. An EV charged off midday solar is about the cheapest motoring available in Australia. It follows the same logic as running a hot water system or a battery on surplus solar: a unit of your own sunshine is worth far more used at home than exported for a few cents.

The catch is that this only works well when the charger, your solar and any battery are designed to work together. A charger wired in as an afterthought will often pull from the grid in the evening, which defeats the purpose. Set up properly, it draws on your solar through the day and tops up from the cheapest power overnight.

Where RPC fits

We are not a novated lease provider, and for the lease itself we would point you to a salary-packaging specialist or your accountant. What we do is the other half: making sure the car runs on your own clean power once it is in the driveway. Since 1987, Rainbow Power Company has designed solar, battery and EV charging as one connected system rather than three separate installs, built for Australian conditions and supported by a local team long after the job is finished.

If you are weighing up an EV this year, it is worth designing the charging side at the same time, so the savings on the lease are matched by near-free fuel from your roof.

This article is general information only and is current at the time of writing. It is not financial, tax or legal advice, and it does not take your personal circumstances into account. Fringe benefits tax, the electric car exemption, luxury car tax thresholds and income tax rates change over time and depend on your situation. Figures and examples are illustrative, not a quote, and not a guarantee of savings. Before entering a novated lease, confirm the current rules and your own position with a qualified accountant or financial adviser and your lease provider. Rainbow Power Company designs solar and EV charging systems and does not provide novated leasing or financial advice. Rainbow Power Company, 1 Alternative Way, Nimbin NSW 2480.