Novated Lease FBT Guide: Everything You Need to Know

What’s New (Last Updated: October 2026) 

Keep checking this page for updates on novated leasing and Fringe Benefits Tax: 

• EV FBT exemption ongoing: Eligible electric vehicles remain exempt from fringe benefits tax. The exemption applies to vehicles valued below $91,661 excluding government charges (FY 2026/27 threshold).
• Future changes to watch: The government has already announced phased changes starting 1 April 2027, introducing a $75,000 threshold for the full exemption before transitioning to a 25% FBT discount from 2029. 
• FBT rate: Fringe benefits tax is charged at 47% (45% tax plus 2% Medicare levy) where it applies.
• FBT year: The FBT year runs from 1 April to 31 March each year. Leaselab manages your FBT documentation and reporting. 

What is FBT? 

Fringe benefits tax (FBT) is a tax applied to non-cash work perks provided by employers to employees. It exists because these benefits are otherwise not subject to standard income tax.

Some common fringe benefits include: 

• Vehicles provided for personal use (including novated leases)
• Private health insurance
• Accommodation allowances
• Entertainment allowances
• Discounted loans 

To put it simply, if you receive a benefit at work that’s not part of your salary, FBT will usually apply to it. Unless, of course, there’s an exemption (more on this later).  

How does FBT work on a novated lease? 

This is where it can get a bit confusing. Yes, FBT technically applies to leased vehicles. But it can be reduced through smart structuring.   

How is FBT calculated? 

Your FBT liability is calculated in one of two ways: 

1. Flat Rate (Statutory Formula)  

A flat 20% of the vehicle’s base cost (purchase price, dealer delivery, GST, and luxury car tax, but excluding registration and stamp duty). This is the standard calculation for most novated leases where the vehicle is primarily for personal use.

2. Business Use Percentage 

Based on your actual private use percentage, determined by logbook records. This method applies when you have significant business use (typically 80%+) and requires detailed record-keeping. 

How does a lease provider handle FBT liability? 

Once FBT is calculated, there are two approaches to handle liability: 

1. Employee Contribution Method (ECM)

The most common approach. You contribute from your after-tax salary toward vehicle running costs (fuel, servicing, tyres, maintenance). This reduces your FBT liability dollar-for-dollar.
Most leases end up with close to zero FBT payable, costing you far less than the liability would otherwise be. 

2. Choose an Exempt Vehicle

Alternatively, lease an eligible electric vehicle and bypass FBT completely. No calculations. No contributions. Zero FBT liability.Your Leaselab consultant will calculate the right contribution level for your specific situation to minimise total costs.

Novated leasing for Employees 

A novated lease payment might appear higher than a traditional car loan payment, but once you factor in pre-tax deductions, GST savings, running costs and eliminated FBT, your actual cost is often lower than financing independently. 

How FBT works on a novated lease: 

• You choose the vehicle and have exclusive use of it
• Salary sacrifice reduces your taxable income (the lease payment comes from pre-tax salary)
• You’ll make post-tax contributions where required. These are built into your lease arrangement to eliminate FBT liability at a cost far lower than the actual tax would otherwise be payable.

Novated leasing for Employers 

Modern novated lease arrangements are structured so there's no FBT cost to the employer, if done properly. 

How FBT works on a novated lease: 

• You agree to the salary sacrifice arrangement enabling your employee to lease a vehicle
• You pay lease repayments to the lease provider on behalf of the employee from their salary
• You're liable for any FBT that applies (though this is typically reduced to $0 through ECM). In rare instances where FBT does apply, this can be recovered from the employee's salary. 
• You have zero liability once the employee leaves or the lease ends and the lease obligation reverts to them

Tax benefits for Employers:

• Payments made to lease providers are tax-deductible while the lease is active
• GST credits can be claimed on GST included in lease charges

What Leaselab handles vs. your responsibility 

For businesses running novated leasing through Leaselab, we handle all the complexity behind the scenes.

The EV exception: Zero FBT  

In July 2022, Australia’s government rolled out the Electric Car Discount initiative to bring EV ownership within reach.  The biggest win for novated lease customers? Battery electric vehicles are exempt from fringe benefits tax entirely. 

What does this mean? 

When you lease an electric vehicle priced below the luxury car tax cap of $91,661 excluding government charges (FY 2026/27), the government removes all FBT obligations. 

If you choose an eligible EV, your entire lease’s cost, charging, insurance, maintenance, and registration come straight from your pre-tax income. Factor in those GST savings, and petrol cars can’t compete with that value. 

What qualifies for FBT exemption? 

• Battery electric vehicles (BEVs) or hydrogen fuel cell vehicles
• Valued below $91,661 excluding government charges (FY 2026/27 luxury car tax threshold)

What are some popular eligible EVs? 

Here are some popular EVs that Leaselab’s customers are choosing. They’re all eligible for $0 FBT through a novated lease as of October 2026: 

• Tesla Model Y 
• Tesla Model 3 
• BYD Seal 
• BYD Sealion 
• Kia EV5 
• Volvo EX30
• MG MG4
• Hyundai Kona 
• Polestar 4
• Mercedes-Benz EQA 
• BMW iX3

What’s changing with FBT? 

Since the EV FBT exemption was introduced in 2022, the Australian Government has announced phased changes. Here’s what’s happened so far and what’s happening in the future:

Check with your Leaselab Account Manager on current eligibility for any vehicle over $75,000, as the exemption treatment will change.

Are there any other exemptions? 

In rare cases, FBT may not apply in the following situations: 

100% Business Use

If the vehicle is never used privately, no FBT applies. However, there are some specific conditions: 

• The car can be kept at home if the place of work is irregular.
• 'Minor and infrequent' private use is acceptable. 
• The vehicle must be a commercial vehicle.

Simply keeping the car at home doesn’t automatically count as private use if these conditions are met, but it’s a grey area worth discussing with a professional. 

Not-for-Profit Organizations

Some charities and health organisations have FBT caps:

• Public benevolent institutions and health promotion charities: $30,000 cap
• Hospitals and ambulance services: $17,000 cap

Please note: The actual capping limits applied in practice depend on the employer classification, standard gross-up rates and whether the benefit is subject to the lower or higher gross-up calculation. 

Explore Your Options with Leaselab

With us, novated leasing gets personal. FBT rules are complex and individual circumstances vary. Get a novated lease quote with a detailed FBT breakdown, so you understand exactly how it works for you. 

Get started with our novated lease calculator and start comparing your dream cars today. 

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