Insights

For many Australians, a novated lease has become one of the most tax-effective ways to own an electric vehicle (EV).

However, recent Federal Budget announcements mean that these tax benefits will not stay the same indefinitely. The timing of when you enter into a lease could have a significant impact on the overall cost.

This article explains what is changing, how it may affect you, and why acting earlier can make a meaningful difference.

What Is Changing?

Since 2022, eligible electric vehicles have been exempt from Fringe Benefits Tax (FBT) when provided through a novated lease. This has made EVs attractive compared to petrol vehicles.

The Government has now confirmed that this concession will be gradually scaled back.

Current Position (now to 31 March 2027)

• Eligible EVs remain fully exempt from FBT
• This allows lease payments and running costs to be paid from pre-tax income, reducing personal tax

From 1 April 2027 to 31 March 2029

• The rules become more restrictive:
  • EVs priced $75,000 or less are expected to remain fully exempt
  • EVs above $75,000 will only receive a partial FBT discount

From 1 April 2029

• The full exemption is expected to end
• A reduced level of support (25% discount) will apply instead

Importantly, based on current announcements, leases entered into before 1 April 2027 are expected to retain the existing tax treatment for their full term, although final legislation is still being formalised.

The Cost Difference

While the exact outcome varies by individual, the difference between acting before and after April 2027 can be significant:

• Lower tax savings if you delay
• Higher effective cost of ownership
• Less benefit compared to other financing options

For higher income earners, the difference can reasonably amount to tens of thousands of dollars over the life of a lease.

Who Benefits Most?

The value of the FBT exemption is not uniform—it tends to favour higher income earners more strongly.

This strategy is particularly effective if you:

• Earn above $150,000 per year
• Pay tax at a higher marginal rate
• Are considering a new or near-new electric vehicle
• Can salary package through their employer

For this group, the tax savings are amplified, making timing even more critical.

Common Mistakes to Avoid with EV Novated Leases

While the opportunity is clear, there are several common mistakes that can reduce or eliminate the potential benefit.

1. Waiting Too Long: A frequent assumption is that incentives will remain unchanged. In reality, policy changes are already locked in. Delaying a decision could significantly reduce available benefits.
2. Focusing Only on Vehicle Price: The true advantage of a novated lease under the current rules lies in tax efficiency, and not exclusively the cost of the car. Evaluating price alone can lead to incomplete decision-making.
3. Overlooking Lease Structure: Interest rates, residual values and inclusions can vary widely between providers. A poorly structured lease can erode potential savings.
4. Ignoring Personal Tax Position: The effectiveness of salary packaging depends heavily on your marginal tax rate. Generic estimates may not reflect your actual outcome.

Practical Takeaways for EV Novated Leases

If you’re considering an EV, it’s worth:

• Checking your eligibility for the current FBT exemption
• Modelling your expected after-tax cost (not just repayments)
• Comparing starting a lease before vs after March 2027
• Ensuring the lease is properly structured for your situation

Should You Consider an EV Novated Leases?

The current FBT exemption for electric vehicles represents one of the more generous tax concessions available to Australian employees, particularly for high-income earners.

However, with the Government committed to phasing it out, the opportunity to fully benefit from it is time limited.

For many individuals, the decision is not simply whether to purchase an electric vehicle; it is whether to act before the window closes. The difference could amount to tens of thousands of dollars over the life of a lease.

If you are considering an electric vehicle or novated lease, now is the time to assess your options.

Speak with a financial adviser or salary packaging specialist to:

• Model your potential tax savings
• Compare lease structures
• Determine whether acting before 31 March 2027 is appropriate for your situation

Making a well-timed decision could significantly improve your financial outcome.

Altitude Financial Planning is a Corporate Authorised Representative of Altitude Financial Advisers Pty Ltd ABN 95 617 419 959 AFSL 496178

The information contained on this website is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and read the relevant Product Disclosure Document.