Key facts at a glance
LCT threshold 2026-27
$91,661
EV price cap for full FBT exemption
EV FBT exemption
100%
Entire running cost pre-tax, no post-tax top-up
Standard car (ECM)
~20% post-tax
Employee contribution to zero out FBT
So, is a novated lease worth it in Australia in 2026? If you're looking at a fully electric car priced at or under the $91,661 luxury car tax threshold, the answer is almost always yes: the car is 100% FBT-exempt, so the entire lease and running cost comes out of your pre-tax salary, no post-tax top-up needed. If you're looking at a standard petrol, diesel, hybrid car, or a plug-in hybrid, it's still usually worth it, but the saving is smaller, because roughly a fifth of the running cost has to come from post-tax pay under the Employee Contribution Method.
The mechanics matter more than the marketing here. A novated lease is a three-way deal between you, your employer, and a finance provider, where your car's costs get deducted from your pay before tax touches them (fully or partly, depending on the car). Done right, on the right vehicle, it can genuinely save you thousands a year. Done on the wrong car, or without checking the exit terms, it can quietly cost you more than it saves. Below is the actual arithmetic, not the sales pitch.
Run your own salary and vehicle price through the real 2026-27 rules.
Open the Novated Lease CalculatorSalary packaging car Australia: how the EV FBT exemption actually works
Normally, a car provided through a novated lease counts as a fringe benefit, and fringe benefits attract Fringe Benefits Tax (FBT) at a rate steep enough to wipe out most of the pre-tax advantage if left unaddressed. Since 1 July 2022, though, a battery electric vehicle (BEV) or hydrogen fuel cell vehicle (FCEV) priced at or under the luxury car tax threshold for fuel-efficient vehicles, $91,661 for 2026-27, is fully exempt from FBT when salary packaged. That's not a discount, it's a full exemption: the entire lease and running cost, lease repayments, insurance, rego, servicing, charging, all of it, comes out of your pre-tax salary, and there's no employee contribution needed to offset FBT because there's no FBT to offset.
Plug-in hybrids (PHEVs) used to qualify too, but that exemption ended on 1 April 2025. Unless you had a financially binding commitment to a specific PHEV locked in before that date (grandfathered for the life of that arrangement), a PHEV novated lease from 2026 onward is treated exactly like a standard petrol or diesel car for FBT purposes, price is irrelevant.
Pre tax vs post tax novated lease: how a standard car is packaged
If your car isn't FBT-exempt, the Employee Contribution Method (ECM) is what stops the FBT bill from eating your saving alive. You pay part of the running cost from your post-tax salary, the "employee contribution," and that offsets the taxable value of the car fringe benefit under the ATO's statutory formula method, bringing FBT payable down to roughly zero. In practice, novated lease providers commonly model this as needing about 20% of the annual running cost to come from post-tax pay, with the remaining 80% salary-sacrificed pre-tax. You still get a real tax benefit on the pre-tax portion, it's just smaller than what an FBT-exempt EV gets, because a slice of the cost has already been taxed once before it goes toward the car.
A worked example: EV vs standard car, same running cost
Take someone on a $140,000 salary looking at a large SUV or premium car with $20,000/year in combined lease and running costs. Here's what the same running cost looks like packaged as a $60,000 EV (fully FBT-exempt) versus the same cost on a standard petrol, diesel, or hybrid car:
| Vehicle | Pre-tax | Post-tax | Net cost of lease | Tax saved / yr |
|---|---|---|---|---|
| EV, $60k (FBT-exempt) | $20,000 | $0 | $13,250 | $6,750 |
| Standard car (ECM) | $16,000 | $4,000 | $14,530 | $5,470 |
Both options beat paying the $20,000 running cost entirely from post-tax pay, that's the baseline a novated lease is competing against. But the EV comes out roughly $1,280 a year ahead of the standard car on the same running cost, purely because none of it needs a post-tax employee contribution. Change the salary or vehicle price and the gap moves, which is exactly why it's worth running your own numbers rather than borrowing someone else's example.
Try your own salary, vehicle price, and running cost band.
Open the calculatorThe EV exemption is winding back, timing matters
On 4 May 2026 the Treasurer announced a phased wind-back of the EV FBT exemption. Any lease entered before 31 March 2027 keeps the full exemption for the life of that lease, grandfathered, nothing changes retroactively. For leases entered from 1 April 2027, EVs priced up to $75,000 stay fully exempt, but EVs between $75,001 and the luxury car tax threshold only get a 75% FBT discount instead of a full exemption. From 1 April 2029, no new lease is fully exempt at all, a 75% discount is the best case going forward. If an EV novated lease is on your radar, the case for signing sooner rather than later is stronger than it was a year ago.
Three things that trip people up on novated leases
First, the finance rate baked into the lease. Novated lease providers don't always offer the sharpest interest rate on the market, and a high finance rate can quietly outweigh the tax saving, worth comparing against what a standard car loan would actually cost you. Second, management and admin fees charged by the salary packaging provider chip away at the saving month by month, small on paper, real over a 3-5 year term. Third, and the one people underdiscuss: what happens if you change jobs or get made redundant.
A novated lease is tied to your employer, not just to you. Leave the job, and the lease typically has to be paid out in full or transferred to a new employer willing to administer it, either of which can land as an unexpected lump-sum liability at exactly the moment your income is least certain. Ask your provider what the exit terms actually are, in writing, before you sign, not after.
If you've got a HECS/HELP debt, check this first
Salary sacrificing into a novated lease reduces your taxable income, but the pre-tax lease amount gets added back as a reportable fringe benefit for HECS/HELP repayment income purposes. That means your compulsory HECS/HELP repayment is calculated on a higher figure than your reduced taxable income alone, which shaves a bit off the net saving without showing up in the FBT numbers themselves. Run the actual figures through the HECS/HELP Repayment Calculator before assuming the full pre-tax saving is yours to keep.
See your own novated lease numbers
Compare an FBT-exempt EV against a standard car under the Employee Contribution Method, using your actual salary and vehicle price.
Open the Novated Lease CalculatorMonthly briefing
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Frequently asked questions
Is a novated lease worth it in Australia in 2026?
For most people looking at an FBT-exempt EV, yes, it's a genuine tax saving with very little downside, because the entire running cost comes out of pre-tax pay instead of post-tax pay. For a standard petrol, diesel, or hybrid car, it's still usually worth it but by a smaller margin, since the Employee Contribution Method only lets you package roughly 80% of the running cost pre-tax. The answer changes if you're likely to change jobs soon, in which case the exit terms of the lease matter more than the tax saving.
Does the EV FBT exemption apply to plug-in hybrids (PHEVs)?
No, not anymore. PHEVs lost the FBT exemption from 1 April 2025, unless you had a financially binding commitment to a specific PHEV in place before that date, in which case it's grandfathered for the life of that arrangement. Any new novated lease on a PHEV from 2026 onward is treated as a standard, non-exempt car under the Employee Contribution Method, regardless of the vehicle's price.
What changes to novated lease EV exemptions after 2027?
A phased wind-back announced 4 May 2026. Any lease you enter before 31 March 2027 keeps the full exemption for its entire term, that part doesn't change retroactively. For leases entered from 1 April 2027, EVs priced up to $75,000 stay fully exempt, but EVs between $75,001 and the luxury car tax threshold only get a 75% FBT discount instead of a full exemption. From 1 April 2029, no new lease gets a full exemption at all, 75% discount is the best case going forward. If you're planning an EV novated lease, locking it in before 31 March 2027 is worth doing sooner rather than later.
What is the Employee Contribution Method (ECM)?
ECM is how a novated lease on a non-exempt car (petrol, diesel, hybrid, or a PHEV) avoids paying Fringe Benefits Tax on the car. You pay part of the running cost from your post-tax salary, the 'employee contribution,' which offsets the taxable value of the car fringe benefit under the ATO's statutory formula method. Set correctly, this brings FBT payable down to roughly zero. The trade-off is that portion comes from pay you've already been taxed on, rather than pre-tax pay, so you still get less of a tax benefit than an FBT-exempt EV.
What happens to my novated lease if I change jobs or get made redundant?
This is the risk people underestimate. A novated lease is a three-way arrangement between you, your employer, and the finance provider, and it's tied to your employment. If you leave, get made redundant, or your employer stops offering salary packaging, the lease doesn't just quietly transfer, it typically needs to be paid out in full or transferred to a new employer willing to administer it, and either can mean an unexpected lump-sum liability landing on you at a bad time. Before signing a multi-year lease, it's worth asking your provider exactly what happens on exit, in writing, not just taking it on trust.
Does a novated lease affect my HECS/HELP repayments?
Yes, and it's easy to miss. The pre-tax amount you salary-sacrifice into a lease gets added back as a reportable fringe benefit for HECS/HELP repayment income purposes, so your compulsory repayment is calculated on a higher figure than your reduced taxable income alone would suggest. It doesn't wipe out the tax saving, but it does shrink it if you're still paying off a HELP debt. Run your own numbers through the HECS/HELP Repayment Calculator before assuming the full pre-tax saving is yours to keep.
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