EV Novated Leases in Australia: How the Tax Break Works, Who Can Use It and What Changes in 2027

If you are a salaried employee and your employer offers salary packaging, which most medium and large Australian organisations do, a novated lease is the cheapest way you will find to drive an electric car. It is an agreement between you, your employer and a leasing company under which the car’s lease payments and running costs come out of your salary before tax. Since July 2022 an eligible EV on a novated lease has also been exempt from fringe benefits tax, which is what makes the EV version so much better than the petrol one: registration, insurance, servicing, tyres and charging all come from pre-tax income, with nothing clawed back. On a $120,000 salary that is 32 cents saved on every dollar packaged, and 39 cents above $135,000. The tax break is federal, so it is the same in every state, and it has nothing to do with whether you hold an ABN. The May 2026 Budget announced a phase-down that starts on 1 April 2027 with a $75,000 cap and ends in April 2029 with a permanent 25 per cent discount; leases signed before then keep the full exemption for their term. This guide covers how it works, what it saves at your income, and the catches the provider calculators leave out.

How does an EV novated lease work?

Three parties sign. A financier buys the car and leases it to you; your employer takes over (“novates”) the lease payments while you work there, deducting them from your salary before tax; and a salary packaging provider, often the same company as the financier, runs the budgets for running costs. You drive the car as if it were yours, and at the end of the term you pay a residual amount to keep it, sell it, or roll into a new lease.

Two things make a novated lease cheaper than a loan. The first is income tax: every dollar of lease payment and running cost taken from pre-tax salary saves you tax at your marginal rate, which for 2026-27 is 30 cents in the dollar between $45,001 and $135,000, 37 cents to $190,000 and 45 cents above that, plus the 2 per cent Medicare levy. The second is GST: the financier claims the GST on the purchase price, and your employer claims it on running costs, so you effectively pay no GST on either. The GST credit on the car is capped at one eleventh of the car limit, which is $69,883 for 2026-27, so the most you save on the purchase price is $6,353.

For a petrol car this saving has always been partly clawed back by fringe benefits tax, which is charged to the employer at 47 per cent on a taxable value of 20 per cent of the car’s cost, and passed on to you. Providers cancel it with the “employee contribution method”: you pay a slice of the lease from post-tax salary equal to that taxable value, and only the rest comes from pre-tax. As SG Fleet puts it, for petrol and diesel cars “both pre- and post-tax lease payments are necessary to minimise FBT. With no FBT, there’s no need for post-tax lease payments.” An eligible EV has no FBT to cancel, so the whole lease and all the running costs come from pre-tax income. That is the entire reason an EV novated lease and a petrol novated lease are different products, and why a dearer EV can cost less per week than a cheaper petrol car.

Who can get one?

Three things, in the order they usually stop people.

Your employer has to offer it. Novated leasing is voluntary for employers and runs through payroll, so the first question is whether yours has a salary packaging arrangement. Most medium and large employers, the public sector, universities, hospitals and not-for-profits do, usually with one or two nominated providers; ask HR or search the intranet for “salary packaging”. If yours has none, it costs the employer little to start: the lease is not a liability on its books, and because the benefit is FBT-exempt it is not counted as wages for state payroll tax either, a point Revenue NSW makes directly (“If the benefit is exempt under the FBTAA, or has a nil value, it is not liable for payroll tax”). The pitch to a reluctant HR department is that the provider does the work.

You have to be an employee on a PAYG salary. The exemption applies to a car provided to “a current employee or their associates”, in the ATO’s words, and the payments come out of a wage. Full-time and part-time employees qualify. Casuals and fixed-term staff usually can, subject to the provider’s checks on income stability, since a lease outlives a short contract. You do not need an ABN, and holding one alongside your job changes nothing. Sole traders and contractors invoicing on an ABN cannot novate, because there is no employer to deduct the payments; a director paid a PAYG wage by their own company can. Our sole trader and ABN page covers those cases and what the self-employed can claim instead.

Your marginal tax rate sets the size of the saving. The tax saved is your marginal rate times the amount packaged. For 2026-27 that is 30 cents in the dollar between $45,001 and $135,000, 37 cents to $190,000 and 45 cents above, plus the 2 per cent Medicare levy. At $120,000, packaging $14,000 a year saves about $4,480 in tax. At $160,000 the same package saves about $5,460, because all of it comes off income taxed at 37 per cent. Below $45,000 the rate is 15 per cent and the provider’s fees and interest can eat most of the benefit, which is why the scheme is used overwhelmingly by people in the middle and upper brackets.

Which cars qualify?

The ATO’s electric cars exemption page sets four conditions, and every one has a trap in it.

It must be a zero or low emissions vehicle. That means a battery electric or hydrogen fuel cell car. Plug-in hybrids dropped out on 1 April 2025; a PHEV lease that was already running with a binding commitment on that date keeps its exemption to the end of the term, but any change to the arrangement, including re-novating to a new employer, ends it. Conventional hybrids never qualified.

It must be a car. For FBT purposes a car is designed to carry a load of less than one tonne and fewer than nine passengers. An electric ute or van rated to carry a tonne or more is not a car, so the exemption does not apply to it; check the payload on the compliance plate, not the marketing. Motorcycles and scooters are excluded even if they are electric.

It must have been first held and used on or after 1 July 2022. A second-hand EV qualifies if its first owner took delivery after that date. A demonstrator registered in June 2022 does not, ever.

Luxury car tax must never have been payable on it. The car’s value must have been under the LCT threshold for fuel-efficient vehicles at its first retail sale and at every sale since. The ATO publishes the threshold each year, and the year that matters for a used car is the year it was first sold new.

So a 2023 performance model that listed at $99,000 new is permanently ineligible however cheap it is now, while a used car that was $80,000 new is fine. Providers layer their own rules on used cars: a maximum age at the end of the lease, commonly 12 years, and a preference for dealer stock, because the GST saving on the purchase price only exists when the seller is registered for GST. A private sale still gets the exemption on running costs but saves nothing on the price.

Which popular EVs sit under the $75,000 line?

The $75,000 figure in the 2027 phase-down is the one to plan around now if you expect to sign after 31 March 2027. The legislation defining exactly how “costing $75,000” will be measured has not been introduced, so treat this as list price before on-road costs and check the final wording.

Prices are the makers’ list prices as reported by CarExpert and Drive on the dates shown, checked 14 September 2026; on-road costs, options and paint sit on top, and Tesla in particular moves prices without notice. The government’s own count in May 2026 was around ten EV models under $40,000 and one under $30,000. Most of the top sellers sit well under the line; the models the cap catches are the dual-motor and long-range versions of mid-size SUVs and sedans, and much of the European premium range.

What changes from April 2027?

On 5 May 2026, as part of the 2026-27 Budget, the government announced a two-step wind-back of the exemption, following the statutory review of the electric car discount. The ATO’s summary of the measure, last updated 14 May 2026, says in its own words that “This measure is not yet law” and that “Existing leases won’t be impacted by these changes.”

The mechanics: the full exemption is delivered through a 0 per cent rate in the FBT statutory formula, and the 25 per cent discount through a 15 per cent rate instead of the usual 20 per cent. The review behind the change found the exemption had cost about $2 billion in its first three years against an original estimate of $205 million over four; the government says the wind-back will save $1.7 billion over five years.

What it means for timing: a car under $75,000 is untouched until 1 April 2029; a car between $75,000 and $91,661 is worth signing before 31 March 2027, because a 25 per cent discount still leaves three quarters of the FBT to cancel with post-tax contributions; and what “existing leases” means for a job change mid-lease will not be clear until the bill is drafted. Our 2027 changes page tracks the dates, the grandfathering question and the bill’s status, and is updated as they move.

What does it actually save?

Treasury’s figure when the exemption was introduced was a saving of “up to $4,700 a year” for an individual salary-sacrificing a car “valued at about $50,000”, and up to $9,000 a year for an employer providing the same car. The published examples since then land in the same range, and the mechanics are simple enough to check for yourself.

The arithmetic at $120,000 to $150,000. On the published examples, a $47,000 to $60,000 EV packages at about $13,000 to $14,000 a year on a five-year lease with running costs included: CarExpert’s MG ZS EV example ran at $253.51 a week, and SG Fleet quotes a Tesla Model Y RWD from $268 a week. At $120,000 that package saves $4,200 to $4,500 a year in income tax and Medicare levy. At $150,000 it saves about $5,100 to $5,500, because the packaged amount all comes off income taxed at 37 per cent. Add the GST you do not pay on the car, up to $6,353, and on the running costs, and the gross benefit over five years sits in the $25,000 to $30,000 range before the provider’s fees and any interest premium over a bank loan. That is where the published totals come from.

The published examples. CarExpert’s September 2024 example, using Oly’s calculator for a Victorian on $130,000 driving 15,000 km a year on a five-year lease, put an MG ZS EV Long Range at $46,990 drive-away against a $25,286 Suzuki Ignis. The weekly payment was $253.51 for the MG and $190.15 for the Suzuki, but after tax and GST savings of $110.25 and $43.47 a week, the net cost was $143.26 a week for the EV and $146.68 for the petrol car: the EV, at nearly twice the price, was cheaper to have. Canstar’s October 2025 comparison used a $50,000 car on an $80,000 salary, 15,000 km, five years, 8 per cent interest and a $29 a month management fee, so it is a conservative figure for a higher earner: the exempt EV lease came out $24,848 cheaper than financing the same car with a loan, while a petrol car on the same lease saved $11,923. Drive’s February 2024 example on a BMW iX1 at $84,900 showed the same shape at the top of the range: a five-year total of $101,120 on a lease at 8.9 per cent against $134,413 on a car loan.

Against cash in the offset. The comparison most people on this income actually face is not lease versus car loan but lease versus paying cash, or leaving the cash in a mortgage offset. Canstar ran that too: on its $50,000 EV the lease beat paying cash outright by $11,439, and by $19,403 if the cash would otherwise have earned 3 per cent, or $28,350 at 6 per cent, which is close to what a mortgage offset saves you. The lease wins because the tax saving is worth more than the interest, provided the lease rate is not far above your mortgage rate.

Where the saving leaks. Those are provider-fed numbers, and the reason to trust them is that the mechanism is sound rather than that the calculators are neutral. Three habits keep you honest. First, ask the provider for the interest rate and the total fees separately, and compare the rate to what your bank would charge for a car loan; the tax saving is real, but a provider can quietly give a chunk of it back to itself. Chang-Yang Yew, who runs an independent novated lease calculator, told the ABC in April 2026 that workplaces locked to a single provider tend to see “higher effective interest rates and fees”, and compared the advertised tax saving to a supermarket raising a price before discounting it. Second, run the numbers on a calculator that is not run by a lease provider, and compare against paying cash, keeping cash in a mortgage offset, and a bank loan; Moneysmart’s salary packaging page is the government’s plain-English starting point. Third, ask payroll whether your superannuation guarantee is calculated on your salary before or after packaging; the ABC’s explainer notes that some employers pay it on the lower figure, which quietly costs you 12 per cent of the packaged amount in super every year.

The catch: it still counts as income for some purposes

This is the part every provider page skips. Although the private use of an eligible EV is exempt from FBT, the ATO says it “is still a reportable fringe benefit.” Your employer works out the notional taxable value as if the car were taxable, grosses it up, and reports it on your income statement as a reportable fringe benefits amount, or RFBA. You do not pay income tax on it. It is used, in the ATO’s words, to determine your Medicare levy surcharge, private health insurance rebate, HELP and other study loan repayments, child support, Family Tax Benefit and Child Care Subsidy, Division 293 tax on super contributions, and the government super co-contribution, among others.

The arithmetic: the statutory formula values a car benefit at 20 per cent of its base value per year, and reportable amounts are grossed up at 1.8868. A $60,000 EV gives a taxable value of $12,000 and an RFBA of about $22,642 a year. That lands on top of your taxable income for the tests above.

At this income the test that bites most often is the Medicare levy surcharge. Take a single person on $120,000 with no private hospital cover who packages $14,000 a year for a $60,000 EV: taxable income falls to $106,000, the $22,642 RFBA is added back for the surcharge test, and at $128,642 they sit in Tier 2, paying 1.25 per cent, about $1,600 a year, on top of the ordinary Medicare levy. Hospital cover removes the surcharge, but the RFBA also counts for the private health insurance rebate tiers, so the rebate shrinks. With a HELP debt, the same RFBA lifts repayment income by $22,642 and the compulsory repayment by about $3,400 to $3,850 a year at the 15 and 17 cent rates; that is debt you owe anyway, paid sooner, but it comes out of the same pay packet. A couple with children in care will see the Child Care Subsidy taper as the RFBA lifts family income. For most people in this bracket the pre-tax saving still comfortably outweighs these effects; the point is to put the RFBA into the calculation rather than discover it at tax time. Check the ATO’s consequences of an RFBA before you sign, and put the RFBA into any calculator that asks for it.

One more effect the ABC’s explainer raised: lenders treat the lease as a commitment, so a novated lease can reduce your home-loan borrowing capacity by a multiple of the car’s value. If you are about to buy a house, sequence the two.

Does it differ from state to state?

The FBT exemption, the GST saving and the income tax rates are all federal. Where the states come in is the on-road cost of the car, which the lease finances, and here the picture has thinned out fast: every state purchase rebate has now closed, most within the last two years.

Sources: Revenue NSW and the NSW road user charge page; SRO Victoria duty rates and Drive’s report on the end of the registration discount; Queensland duty rates and QRIDA; SA Treasury; WA Government; SRO Tasmania and NRE Tasmania; ACT Revenue Office and Access Canberra; NT Government. Checked 14 September 2026.

Two points for lease shoppers. Stamp duty and registration are the same whether you buy or lease, so a state concession flows through to the lease; the financier pays it and finances it, and it shows up in your quote. And the road user charge question is national now: after the High Court struck down Victoria’s scheme in October 2023, the federal Treasurer and the state treasurers agreed in September 2025 to work on a national charge, and in April 2026 the federal Transport Minister said no announcement would come in the May Budget. Any charge would apply to every EV, leased or not, so it belongs in your running-cost assumptions rather than your lease decision.

Can you package home charging and the charger?

Electricity yes, hardware no. The ATO lists “fuel, including the cost of electricity to charge electric cars” among the exempt car expenses, and gives two ways to work out home charging: actual cost, which needs a charger or meter that records the kilowatt-hours, or the shortcut rate in Practical Compliance Guideline 2024/2, which is 5.47 cents a kilometre for the FBT year that began on 1 April 2026 and was 4.20 cents for earlier years. Providers reimburse on one method or the other; Paywise, for example, offers the electricity bill route or the ATO rate, and requires you to stick to one for the FBT year. At 15,000 km a year the shortcut is worth about $820 of pre-tax reimbursement. Public charging receipts are claimable on top; our cost to charge guide has the per-kilowatt-hour rates to budget with.

The wall box is different. The ATO’s page is explicit: “A home charging station is not a car expense associated with providing a car fringe benefit for electric cars. However, it may be a property fringe benefit or an expense payment fringe benefit.” In practice that means providers will not put the charger and its installation into an exempt EV package; Smart’s guide says third-party wall chargers, including installation, cannot be salary packaged. Budget for it separately, using our charger installation guide for what electricians charge and the home charger comparison for the hardware. If you have solar, the reimbursement maths gets interesting, because the ATO rate pays you the same 5.47 cents whether the electricity cost you 30 cents or nothing; the solar charging guide covers the daytime-charging side.

Residual value, the end of the lease, and changing jobs

The residual. A novated lease never pays the car off. The ATO sets minimum residual values so that a lease is a lease and not a disguised purchase; for cars, ATO ID 2002/1004 puts them at 65.63 per cent of cost after a one-year lease, 56.25 per cent after two, 46.88 per cent after three, 37.5 per cent after four and 28.13 per cent after five, and most quotes use exactly those figures. On a $60,000 car on a five-year term that is a residual of about $16,900, payable from post-tax money and with GST on top. It is a real cost, not a technicality. At the end you can pay it and keep the car, sell the car and use the proceeds to clear it, or refinance into a new lease. The risk is an EV whose resale value falls below the residual, which is what a mid-lease cut to new-car prices does to you, and Tesla in 2023 and BYD in early 2026 both cut. A shorter lease on a car with steady resale, or a used car with the depreciation already taken, narrows that gap.

Changing jobs. The lease is yours, not your employer’s. If you leave, the novation ends, the running-cost budgets stop, and you keep paying the financier from post-tax income until a new employer agrees to take the lease on. Many do; if yours does not, or you stop working, the options are to keep paying it like a car loan or to pay it out early, and the ABC’s explainer is blunt about early payout: “all your leftover lease commitments now have to be paid out in full”, and the tax savings to that point can be lost. NALSPA’s chief executive Rohan Martin put it the same way: if the new employer will not take the lease on, “there may be break costs”. Ask for the early termination terms in writing before you sign, and if a new job is likely inside the lease term, ask the new employer about novated leasing at the offer stage.

Insurance and roadside. The lease will usually bundle comprehensive insurance and often roadside assistance, priced by the provider’s partner. You can normally choose your own insurer; compare, because the bundled quote is not always the cheapest, and check the roadside product covers EV towing on a flatbed, which our roadside assistance comparison goes through.

What to ask before you sign

1. What is the interest rate on the finance, and what is the comparison rate? Ask for both as numbers, not “competitive”.
2. What are the fees, in total: establishment, monthly management, and anything at termination?
3. What is the residual, in dollars, and is GST included in that figure?
4. Which running costs are budgeted, at what annual figures, and what happens to unspent budget at the end?
5. Are any insurances, tyre plans or extended warranties included by default, and what is the price without them?
6. Can I bring my own insurer? Can I bring my own finance?
7. What are the early termination terms if I change jobs, and does the new employer have to use the same provider?
8. What is the reportable fringe benefits amount on this car, and have you put it through my HELP, Medicare levy surcharge and family payment position?
9. If I sign after 31 March 2027, how will the $75,000 cap or the 25 per cent discount be applied to this car?
10. Who is the financier, and does the provider earn a commission on this lease?

If the answers are slow or vague, get a second quote from another provider, even if your employer prefers one. Employers can add a provider more easily than the first provider will tell you.

Where this fits with the rest of owning an EV

The lease decides how you pay for the car; it does not change what the car costs to run, which is where an EV earns its keep. Our cost to charge and charging at home guides cover the electricity side, do electric cars need servicing covers the maintenance budget the provider will estimate for you, and EV battery health explains why a three-year-old EV is a safer used buy than its resale price suggests. If you are choosing between models, how far an EV really goes sets expectations for range, and the map shows the public charging where you actually drive. Two questions from this guide have pages of their own: what changes on 1 April 2027, and whether a sole trader or ABN holder can novate.