Electric vehicle novated leasing
Love the idea of an eco-friendly EV but hate the price? This could be your solution.
Key takeaways
- Novated leasing an electric vehicle works the same way as any novated lease, but there can be even more tax benefits.
- Eligible electric cars are exempt from fringe benefits tax, and fuel-efficient cars have a higher luxury car tax threshold.
- Novated leases come out of the employee's pre-tax salary, which means they pay less income tax.
What is a novated lease?
A novated lease is a form of salary sacrificing. You get to lease a car and pay for it through your pre-tax salary. It involves an agreement between yourself, your employer and the leasing company.
Your employer agrees to pay for the leasing costs directly and they then recoup the costs from your salary. But because it comes from your pre-tax salary you end up paying less tax.
What are the benefits of novated leasing an electric vehicle?
For the employee
- Cost and tax benefits. If you've been nervous about the cost of an electric vehicle, this is a cost-effective option which also saves you money on tax! You may also benefit from corporate fleet discount programs that can reduce the retail price of a vehicle.
- Easy loan management. With the payments coming out of your salary before you even see it, you don't have to worry about managing the costs yourself.
- Access to EVs. An electric vehicle can seem out of reach for many but with novated leasing it is a realistic option.
- After-lease sale benefits. Depending on whether you own the car at the end of the lease agreement, if you sell your vehicle after the lease is up, any profit from the sale will be tax-free.
- No usage restrictions. There are no limitations on the way you use the vehicle, and you can use it for business or personal use as much as you like.
For the employer
- No fringe benefits tax. Eligible electric vehicles and their associated costs are exempt from fringe benefits tax (FBT). The exemption applies to battery electric and hydrogen fuel cell cars on which no luxury car tax was payable.
- A way to offer incentives. A novated lease is a way to incentivise employees with little expense to your business.
- Limited risk. You won't be responsible for the vehicle if your employee leaves before the lease is up.
- Not attached to the business. Novated leases are not considered an asset or liability of the business.
- You don't need to arrange a company fleet. Novated leases are a way for your employees to access discounted vehicle leasing through your company without the burden of your business managing a company fleet.
Tax benefits for electric vehicle novated leasing
Novated leasing in general has tax benefits in that it reduces the amount of income tax the employee pays. Because the repayments come out of the employee's pre-tax salary, the taxable income is reduced. You may even find that the lease payments end up bringing you down into the next tax bracket!
When you lease an electric vehicle, there are further tax benefits and not just for the employee. Eligible electric vehicles are exempt from fringe benefits tax (FBT). Normally, a benefit like novated leasing is a 'fringe benefit'. This is a non-monetary benefit that the employer gives the employee, but they still need to pay tax on. With an eligible electric vehicle, the employer doesn't need to pay FBT. To qualify, the car must be a battery electric or hydrogen fuel cell car that was first held and used on or after 1 July 2022, and no luxury car tax can have been payable on it. Plug-in hybrids no longer qualify, except for some arrangements already in place before 1 April 2025. Check with your employer or leasing provider that your car is eligible.
Fuel-efficient cars, including electric vehicles, also have a higher luxury car tax threshold. For the 2026-27 financial year, no luxury car tax applies to a fuel-efficient car valued at or below $91,661. The threshold is indexed each year, so check the ATO's current luxury car tax thresholds.
What electric vehicles are available?
The vehicles available will depend on the leasing company you go through. But as a general overview, here are some EVs you might find on offer. Model line-ups and prices change, so check that the car you choose is priced under the fuel-efficient luxury car tax threshold:
- BMW iX1
- BYD Atto 3
- BYD Dolphin
- BYD Seal
- Cupra Born
- Fiat 500e
- Hyundai Kona Electric
- Hyundai Ioniq 5
- Hyundai Ioniq 6
- Kia Niro Electric
- Kia EV6
- MG 4
- MG ZS EV
- Mini Electric
- Nissan Leaf
- Polestar 2
- Renault Megane E-Tech
- Tesla Model 3
- Tesla Model Y
- Volvo C40 Recharge
- Volvo XC40 Recharge
Fully maintained vs non-maintained novated leases
With a fully maintained novated lease you'll not only pay for the cost of the car through your pre-tax salary, you'll pay for the maintenance costs as well. That includes servicing, maintenance and insurance. The good news here is that you'll save even more on income tax. But remember, you'll lower your income even further.
A non-maintained novated lease is where your pre-tax salary is only used to pay for the lease of the car and no other costs. You'll need to use your take-home income to pay for those additional costs, but it may mean you can shop around and get a better deal on those costs.
What happens to your electric vehicle at the end of the lease?
What happens with your electric vehicle after your lease ends depends on the lease agreement. You don't necessarily end up owning the vehicle, but in some circumstances you can make a balloon payment to buy the car. Then, you can choose to keep it or sell it.
If buying the car isn't an option or you decide not to, the lease will end. You may then want to start a new lease option, but that's between the employer and employee.
In either scenario, until you actually 100% own the car you should not make any modifications to the car and ensure it is kept in good condition. If you need to end the lease and return the car for any reason you could be charged extra.
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