Thinking about going electric? Now might be the perfect time.

With all the buzz around electric cars in Australia – and a growing push to go green – there’s a powerful incentive for EVs that could save you thousands: the EV FBT exemption.

But what is it exactly? And how does it work with a novated lease?

This guide breaks it all down: what the EV FBT exemption is, who it applies to, how much you could save, and more.

Fringe Benefits Tax (FBT) explained

Fringe benefits tax (FBT) is a tax employers pay when they provide benefits to employees on top of their regular salary (like a car through a novated lease). It’s separate from income tax and is calculated at a rate of 47% on the taxable value of the benefit.

A novated lease counts as a fringe benefit because the car is available for personal use.

The ATO says if the car’s parked at or near your home, it’s considered available for personal use and is fair game for FBT. In other words, the tax is applied to the “personal” benefit you’re getting from the car, even if you mostly use it for work.

Normally, this means your employer would pay thousands in FBT over the novated lease term, meaning you’d have to make post-tax contributions to offset it.

But here’s the good news: thanks to the Electric Car Discount Bill, eligible EVs under a novated lease are now exempt from FBT. 

What is the EV FBT exemption?

The EV FBT exemption is a tax break that lets you salary package an eligible electric car through a novated lease without paying fringe benefits tax (FBT). 

That’s a big deal. Normally, FBT adds thousands to the cost of a novated lease. But this exemption means you pay for your EV using all of your pre-tax income, significantly lowering the total cost.

In simple terms? The government is giving you a leg-up for going electric.

How the EV FBT exemption works

Here’s how it plays out in practice:

• Your employer sets up a novated lease on an eligible EV.
• Normally, the ATO would treat this as a fringe benefit and apply FBT at 47% of the benefit’s taxable value. 
• But under the exemption, no FBT applies – and you can package the lease and running costs entirely from your pre-tax salary.

There’s a caveat though: the car’s value has to be under the luxury car tax (LCT) threshold for fuel-efficient vehicles, which is $91,387 for 2025-26. Go over that, and the exemption doesn’t apply.

The result? More money in your pocket. Your take-home pay increases, and total lease costs drop by thousands, depending on your income and the vehicle you choose.

Why the EV FBT exemption exists

The exemption came into effect in 2022 as part of the Federal Government’s push to make EVs more affordable and mainstream in Australia. 

Why? Because EVs are still generally more expensive than petrol cars upfront, and this policy helps speed up the shift to cleaner transport. 

The EV FBT exemption is sticking around until at least 30 June 2027, with a review planned after that date. 

How much can the EV FBT exemption save you?

The EV FBT exemption can save eligible employees between $3,000 and $5,000 in income tax each year, according to the Electric Vehicle Council. 

That’s because the exemption lets you salary package the entire cost of an eligible EV (including running costs) using your pre-tax income. Normally, only part of these costs can be paid pre-tax, with the rest paid from your post-tax salary to offset fringe benefits tax.

Over a typical 5-year novated lease, that can add up to $8,000 to $12,000 in total tax savings, depending on your income, the car you choose, and how the lease is structured.

Novated lease cost breakdown example: $0 FBT vs FBT

Liam lives in NSW, earns $90,000 a year, and wants to salary package a BYD ATTO 3 via a 5-year novated lease. He expects to drive 15,000km a year. 

Here’s an example of how much Liam could save with the EV FBT exemption versus without it:

With the EV FBT exemption, Liam’s take-home pay increases by $450 a month compared to a non-exempt lease. But it’s important to note – that’s only a cashflow difference, not the actual tax saving.

The real benefit is that Liam can pay the entire lease cost using pre-tax dollars, rather than just part of it (typically around 50–60% under the Employee Contribution Method). If we assume 60% of the $750 lease could normally be salary packaged pre-tax without the exemption, that’s a difference of about $270/month, or $3,240/year in extra pre-tax deductions

‍Note: This is a simplified example only. It doesn’t factor in the car loan’s interest rate, the residual value of the car, or other variables that may affect the final cost. Your costs and savings may differ based on your personal situation. Always seek independent financial and tax advice to determine if a novated lease is right for you.

What makes a car eligible for the EV FBT exemption?

Not every electric car makes the cut, so it’s worth knowing what boxes need to be ticked before you start test-driving your dream EV.

To qualify for the EV FBT exemption, the car must:

• Be a zero or low emissions vehicle, which includes –
  
  • Battery electric vehicles (BEVs) – fully electric, no fuel tank in sight.
  • Hydrogen fuel cell vehicles – less common but still eligible.
  • Plug-in hybrid electric vehicles (PHEVs) – but only if purchased before 1 April 2025.

• Be first held and used after 1 July 2022, meaning you can’t claim the exemption on an older EV you already own.
• Be below the luxury car tax (LCT) threshold for fuel-efficient vehicles, which is $91,387 for the 2025-26 financial year.
• Be used by a current employee or their associate (like a spouse or family member).
• Be designed to carry a maximum of eight passengers (including the driver) and have a load capacity under one tonne.‍

Which EVs pay $0 in FBT through a novated lease? 

Once you know you’re eligible, it’s time to shop around for a car that qualifies for the exemption. Here are some of the most popular electric vehicles in Australia that currently make the cut:

• Tesla Model 3 and Model Y 
• BYD Atto 3, Dolphin, Seal and Sealion
• MG4
• Hyundai Kona, Ioniq 5 and Ioniq 6
• Kia Niro, EV6, EV5 and EV3
• Geely EX5
• BMW iX1 and iX2

If you're leasing through us, we’ll let you know exactly which models qualify for the FBT exemption to save you the hassle. But if you're comparing cars yourself, make sure the vehicle falls under the LCT threshold and hasn’t had any LCT applied in the past.

Which cars don’t qualify for the EV FBT exemption?

As the name of the exemption suggests, not all cars qualify. To be eligible, the vehicle must be zero- or low-emissions and fall under the luxury car tax (LCT) threshold for fuel-efficient vehicles.  

That means:

• No EVs that exceed the LCT cap
• No internal combustion engine (ICE) vehicles (includes cars, vans, motorcycles, scooters, caravans or motorhomes)
• And the vehicle still needs to meet the ATO’s definition of a “car” (so some utes or larger vehicles may not qualify)

EV FBT exemption pros and cons

Pros

• You can save thousands in income tax each year by paying for your EV and running costs with pre-tax salary.
• The exemption helps bridge the upfront cost gap between EVs and petrol cars, making them more accessible. 
• Encourages more Australians to switch to low-emission vehicles, reducing carbon footprints and supporting sustainability goals. 

Cons

• Only applies to eligible EVs under the LCT threshold, which excludes many premium models. 
• Savings come through reduced tax, not a price cut – and the actual benefit depends on your income and lease structure. 
• The exemption is only legislated until 30 June 2027, with a review planned after that – creating some uncertainty for future leases.