A novated lease is a three-way deal between you, your employer and a lease company. Your employer pays the lease and running costs from your salary before tax, which lowers your income tax.
Since July 2022 eligible electric cars have also been exempt from fringe benefits tax, which is what makes the savings large. Here's how it works in 2026-27.
Where the saving comes from
- Pre-tax payments. Lease payments and running costs come out before tax, saving your marginal rate plus Medicare.
- GST. The lease company claims back the GST on the car (up to A$6,353 in 2026-27) and on running costs.
- No FBT on eligible EVs. Battery-electric cars priced up to A$91,661 are exempt. Other cars use the employee contribution method: you pay 20% of the car's value a year from after-tax pay so no FBT is due.
| Lease term | ATO minimum residual |
|---|---|
| 1 year | 65.63% |
| 2 years | 56.25% |
| 3 years | 46.88% |
| 4 years | 37.50% |
| 5 years | 28.13% |
Worked example
Example: A$60,000 EV, 3 years at 8%, A$120,000 salary
Lease A$12,941 a year plus A$3,636 running costs without GST: A$16,578 from pre-tax pay.
That saves A$5,305 in income tax and Medicare, so the real cost is A$11,273 a year, about A$434 a fortnight.
A car loan on the same car costs about A$18,235 a year, so the lease saves about A$6,963 a year. A$28,128 is due at the end to keep the car.
The exempt car still shows as a reportable fringe benefit of about A$22,642 a year, which counts for HELP repayments. Check yours with the HELP calculator.
How to use this calculator
- Choose an electric or petrol car and enter the drive-away price.
- Pick the lease term and interest rate.
- Enter yearly running costs and your salary.
FAQs
Is the EV FBT exemption ending?
The full exemption continues until 31 March 2027. From 1 April 2027 it's being phased down in stages, so check how a new lease will be treated.
Do plug-in hybrids still qualify?
No. Plug-in hybrids lost the exemption from 1 April 2025, unless the lease was committed to before then.
Does a novated lease affect my HELP repayments?
Yes. An exempt EV is still a reportable fringe benefit, which is added to your income for HELP, the Medicare levy surcharge and some payments.
What happens at the end of the lease?
You pay the residual (plus GST) to keep the car, refinance it, or sell or trade it in.
Sources
- ATO: Car thresholds from 1 July (2026-27)
- Maxxia: FBT exemption on novated leases for electric vehicles
Results are estimates for Australian residents and aren't tax or financial advice. For your own return, check with a registered tax agent. Spotted a mistake? Tell us.