Should You Salary Sacrifice for an Electric Vehicle Through a Novated Lease?

With the Federal Government’s push towards greener transport and recent tax incentives, more Australians are considering electric vehicles (EVs). One option worth exploring is salary sacrificing for an EV through a novated lease – but is it the right move for you?

What is a Novated Lease?

A novated lease is a three-way agreement between you, your employer, and a leasing provider. Your employer makes lease payments on your behalf by deducting them from your pre-tax salary, and you get full private use of the vehicle.

When structured correctly, and if the vehicle qualifies, the arrangement can reduce your taxable income and in many cases be exempt from fringe benefits tax (FBT).

The Tax Benefits

Let’s say you earn $100,000 a year. If you salary sacrifice $15,000 towards a novated lease, your taxable income drops to $85,000. Depending on your marginal tax rate, that could translate into thousands of dollars in annual tax savings. Over the course of a five-year lease, those savings could easily add up to more than $20,000.

Running Costs to Consider

While the tax savings can be attractive, it’s important to factor in ongoing vehicle costs:

• Charging: Using grid electricity costs around $500 annually for 12,000 km. Solar can bring this down, while public fast charging may cost $30–$40 per session.

• Insurance: EV insurance can be higher, averaging around $1,500 a year, due to specialist repair needs.

• Servicing: Lower than petrol vehicles, often around $1,000 a year since EVs have fewer moving parts.

• Registration & road fees: Vary by state, with some jurisdictions offering discounts.

These costs – along with charging, insurance, servicing, and even registration – can often be bundled into the lease, helping you budget more easily and potentially gain further tax efficiencies.

Eligibility Rules

Not all vehicles qualify. To access the FBT exemption:

• The car must be a battery electric vehicle or hydrogen fuel cell vehicle.

• Plug-in hybrid vehicles will no longer qualify (since 1 April 2025, unless an existing lease is in place).

• The purchase price must be below the Luxury Car Tax threshold for fuel-efficient vehicles ($91,387 for 2025–26).

• The car must have first been held and used on or after 1 July 2022.

Even when exempt from FBT, the benefit is reportable, which may impact certain government payments or income-tested benefits.

What Happens if Employment Ends?

If your employment ends, the novated lease doesn’t automatically stop. You’ll need to either:

• Take over the lease personally,

• Transfer it to a new employer, or

• Pay out/terminate the lease early (which may involve fees and residual costs).

Is a Novated Lease Right for You?

The financial upside can be significant – but whether a novated EV lease suits you depends on your income level, career stability, driving habits, and overall financial goals. Employers can also consider novated leasing as part of their employee benefits offering, helping attract and retain staff.

For tailored advice on structuring a novated lease and understanding the tax implications, give the Attune Advisory team a call on 1300 866 113 or send us an email. Let’s make sure your decision delivers the best financial outcome possible.