FBT Exemption

What FBT is

Fringe Benefits Tax is a tax paid by employers on non-cash benefits provided to employees. When an employer provides a car - including through a novated lease arrangement - the benefit is normally subject to FBT at 47% (matching the top marginal income tax rate) on an assessed value based on the car’s price.

For an employee, the employer usually passes that FBT cost back through the salary packaging arrangement, which reduces the tax benefit of a novated lease significantly.

What the EV exemption does

The Treasury Laws Amendment (Electric Car Discount) Act 2022 exempted battery electric vehicles and certain plug-in hybrids from FBT entirely, provided they were valued below the luxury car tax threshold for fuel-efficient vehicles (currently $91,387 for the 2024-25 financial year).

The practical result: an employer can provide an eligible EV to an employee through a novated lease, with no FBT payable, and the entire package cost - vehicle finance, registration, insurance, tyres, servicing - can be funded from pre-tax salary.

What the saving looks like

The size of the FBT saving depends on the vehicle price and the employee’s income, but for someone earning $100,000 and leasing a $60,000 EV, the effective tax saving can be $7,000–$12,000 per year compared to buying the same car with post-tax income.

This is why novated leasing has boomed among EV buyers specifically. A car that would otherwise be financially marginal becomes highly competitive once the FBT exemption is factored in.

Plug-in hybrids lost the exemption

From 1 April 2025, plug-in hybrid vehicles (PHEVs) lost the FBT exemption. Only battery electric vehicles (BEVs) and hydrogen fuel cell vehicles (FCEVs) remain eligible. PHEVs ordered before 1 April 2025 with delivery before 1 April 2025 retained the exemption - but any PHEV acquired after that date does not qualify.

Reportable fringe benefits

Even though no FBT is payable on an exempt EV, the benefit is still a “reportable employer super contribution” - it must be reported on the employee’s PAYG Payment Summary and disclosed on their tax return. This can affect calculations for Medicare Levy Surcharge, child support assessments, and some government benefits. Most employees are unaffected, but it’s worth flagging if any of those scenarios apply.

What the threshold covers

The luxury car tax threshold for fuel-efficient vehicles (below 7 L/100km) is indexed annually. In 2024-25 it is $91,387. Virtually all mainstream EVs sold in Australia - Tesla Model 3, IONIQ 6, BYD Seal, Kia EV6, Kia EV5, and similar - fall below this threshold. Only premium EVs like the BMW iX, Mercedes EQS, or Porsche Taycan exceed it.