The Australian Government's electric vehicle Fringe Benefits Tax (FBT) exemption — introduced in 2022 and still in force in 2026 — is one of the most significant financial incentives ever offered for EV adoption in Australia. Combined with salary packaging (also called a novated lease), it allows eligible employees to purchase an electric vehicle using pre-tax income, saving thousands of dollars in both income tax and FBT. Here's a plain-English explanation of how the EV FBT exemption works and how much you can actually save.
What Is the EV Fringe Benefits Tax Exemption?
Normally, when an employer provides an employee with a car as part of their salary package, that benefit is subject to Fringe Benefits Tax (FBT) — levied at 47% on the taxable value of the benefit. This made salary-packaging petrol cars expensive and complicated.
The EV FBT exemption removes the 47% FBT liability entirely for eligible battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) that fall below the luxury car tax threshold (approximately $91,387 in 2025–26). This means your employer incurs no FBT, making it economically attractive for them to offer the vehicle as a fully packaged benefit.
Which EVs Qualify for the FBT Exemption?
To qualify, a vehicle must:
- Be a zero-emission battery electric vehicle (BEV) with no combustion engine
- Have a base price below the luxury car tax threshold (approximately $91,387 in 2025–26 — check the ATO for the current year's figure)
- Be first held and used after 1 July 2022
Popular qualifying models include the Tesla Model 3 (base and Long Range), BYD Seal, BYD Atto 3, MG4 EV, Hyundai IONIQ 6, Kia EV6 (standard range), and many others. Vehicles like the Tesla Model S, Model X, or Porsche Taycan typically exceed the threshold and don't qualify.
How Salary Packaging With a Novated Lease Works
A novated lease is a three-way agreement between you, your employer, and a finance company. Your employer deducts the lease payments and associated running costs from your pre-tax salary, reducing your taxable income. Under the EV FBT exemption:
- The car lease payments come from pre-tax dollars (saving income tax at your marginal rate)
- Running costs (registration, insurance, tyres, servicing, charging) are also packaged pre-tax
- No FBT is payable on any of it for qualifying EVs
The result is that you're effectively buying and running an EV with dollars that have never been taxed — a saving proportional to your marginal tax rate.
How Much Can You Actually Save?
Let's model a concrete example: an employee on $120,000/year purchasing a Tesla Model 3 (RWD) priced at $62,400 drive-away, on a 3-year novated lease with a residual value of 46.88%.
| Scenario | Amount |
|---|---|
| Vehicle price (drive-away) | $62,400 |
| Annual running costs packaged (fuel equiv., rego, insurance, tyres) | $5,500 |
| Total annual package deduction (pre-tax) | ~$22,000 |
| Tax saving at 37% marginal rate (approx.) | ~$8,140/year |
| Total tax saving over 3-year lease | ~$24,400 |
| FBT payable | $0 |
The effective saving of $24,000+ over 3 years on a $62,400 car represents nearly a 40% reduction in total cost compared to buying the same car with after-tax income. For employees on higher marginal rates (45% at incomes over $180,000), the savings are even larger.
Novated Lease vs Buying Outright: Which Is Better?
The novated lease wins on total cost if you're an employee with access to salary packaging — but there are trade-offs:
| Factor | Novated Lease | Buy Outright (After-Tax) |
|---|---|---|
| Upfront cost | Low (financed) | High (full purchase price) |
| Tax efficiency | Excellent (pre-tax payments) | None |
| FBT for EVs | $0 (exempt) | N/A |
| Running costs | Pre-tax via package | After-tax out of pocket |
| Flexibility | Fixed term, residual to pay | Full ownership, sell anytime |
| Job change risk | Can be transferred to new employer | No risk |
How to Set Up a Novated Lease for an EV
The process is straightforward:
- Step 1: Confirm your employer offers salary packaging (most large employers and all government departments do).
- Step 2: Contact a novated lease provider (e.g. Maxxia, SG Fleet, nlc, FleetPlus) for a quote.
- Step 3: Select your EV and confirm it meets the FBT exemption criteria.
- Step 4: Your employer and the leasing company set up the payment arrangement.
- Step 5: Monthly pre-tax deductions begin when you take delivery of the vehicle.
Compare the Total Cost of Your EV
The FBT exemption and salary packaging dramatically change the true cost of owning an EV in Australia. Use our EV vs Petrol Total Cost Calculator to compare the all-in costs of your current petrol car against an EV — including the tax savings from the FBT exemption — and see exactly how many years until an EV is cheaper.