Novated Lease Fringe Benefits Tax (FBT) Guide
Learn how Fringe Benefits Tax works on Australian novated leases, how the Employee Contribution Method (ECM) protects your employer from tax liability, and how the Federal Government's Electric Car Discount makes EVs 100% FBT-free.
The Electric Car Discount (Zero FBT)
Under the Treasury Laws Amendment (Electric Car Discount) Act, eligible battery electric vehicles (BEVs) and hydrogen fuel cell electric vehicles (FCEVs) are 100% exempt from Fringe Benefits Tax.
What is Fringe Benefits Tax (FBT)?
Fringe Benefits Tax is an Australian tax applied to perks or benefits that an employer provides to an employee (or their associates) outside of their regular cash salary. Because having a passenger vehicle available for private use is considered a benefit, a novated lease is classified as a fringe benefit under ATO legislation.
Crucially, by law, the employer is legally responsible for paying FBT, not the employee. However, because employers do not want to incur additional tax burdens for offering salary packaging, standard Australian novated leases are designed so that no FBT is payable at all.
How is Novated Lease FBT Calculated?
The ATO allows the taxable value of a car fringe benefit to be calculated using one of two methods:
1. Statutory Formula Method
A flat 20% statutory rate is applied to the base cost of the vehicle (including factory options and dealer delivery, but excluding government registration and stamp duty).
Requires no logbook and allows 100% private personal use with no driving restrictions.
2. Operating Cost Method
Based on the actual operating expenses of the vehicle multiplied by the percentage of private use determined by a valid 12-week continuous ATO logbook.
Only advantageous if you use the car for substantial business travel (>70% work-related).
The Employee Contribution Method (ECM) Explained
For non-EVs (petrol, diesel, and traditional hybrids), how do we eliminate the 47% FBT liability? We use the Employee Contribution Method (ECM).
Under ATO rules, for every $1 an employee contributes from their after-tax (post-tax) salary toward the car's running or lease costs, the employer's taxable value is reduced by $1.
By making an after-tax contribution exactly equal to the statutory taxable value (20% of the car's base cost), the FBT liability is reduced to exactly $0.00.
The remaining portion of the vehicle lease payment and running costs is deducted from your pre-tax salary, which still delivers significant tax savings!
EV vs Petrol: Why EVs Save So Much More
Notice how the EV requires $0 in after-tax contributions, allowing 100% of costs to shield your salary from tax:
| Feature | Eligible EV (<$91,661) | Petrol / Hybrid (ECM) |
|---|---|---|
| FBT Exemption Status | 100% Exempt (Zero FBT) | Subject to FBT (Offset by ECM) |
| Pre-Tax Salary Portion | 100% of repayments & running costs | Remainder above 20% base cost |
| Post-Tax (ECM) Required | $0.00 | ~20% of car base price / yr |
| Upfront GST Saved | Up to $6,353 | Up to $6,353 |
| Running Costs GST Free | Yes (charging, insurance, tyres) | Yes (fuel, insurance, tyres) |
| Average 5-Yr Net Savings | $20,000 – $35,000+ | $10,000 – $18,000 |
Not-For-Profit & Healthcare Employees (PBI Caps)
Employees of Public Benevolent Institutions (PBIs), registered charities, public hospitals, and ambulance services enjoy statutory FBT exemption caps:
*Important advantage: If you choose an eligible Electric Car, it is already 100% exempt from FBT, meaning it does not consume your general $17,000 or $30,000 living expenses packaging cap!
See What You Save on an EV vs Petrol Car
Toggle between Electric and Petrol in our live calculator to see the exact pre-tax and ECM impact on your pay.
Open Interactive Calculator