When getting a car through a novated lease, many Australians are attracted to the tax savings and convenience. But one part of the process that often causes confusion is the fringe benefits tax (FBT). And fair enough—this isn’t the kind of tax you hear about every day. If you’ve ever asked, “Do I actually pay FBT on a novated lease?” or “How much is FBT?”, this is the deep dive you need.
This guide unpacks how FBT applies, how to calculate novated lease FBT, ways to reduce it, and what’s changed for EV drivers under the FBT exemption rules.
What Is Novated Lease Fringe Benefits Tax (FBT)?
When your employer lets you use your pre-tax salary to lease a car—aka a novated lease—the ATO sees that as a fringe benefit. It’s not part of your normal wage, but it still holds value, so it’s taxed. This is where fringe benefits tax comes into play.
Essentially, FBT on novated lease is the tax applied because you’re receiving a benefit (use of a car) thanks to your job. Your employer technically pays the tax, but in practice, the cost is usually factored into your salary package.
Think of it like this: you get the convenience and potential tax benefits of leasing a car, but the government wants its slice, too.
How Does Fringe Benefits Tax Apply to a Novated Lease?
FBT kicks in when your leased vehicle is available for private use. In the eyes of the Australian Tax Office, this includes:
- Driving to and from work
- Weekend trips
- Simply parking it at home overnight
It doesn’t matter if you drive it or not, if it’s parked at home, FBT applies. That’s because it’s technically available for private use. And yes, even if you’re working from home, the rules still count it as private availability.
The FBT is calculated annually, aligned with the FBT year, which runs from April 1 to March 31.
How to Calculate Novated Lease FBT
There are two accepted ways to calculate novated lease FBT:
1. Statutory Formula Method
This is the most common option, especially for people who use their car for a mix of business and personal purposes.
Here’s how it works:
FBT = (Car purchase price × 20%) × (Days car available ÷ 365) × Gross-up rate × FBT rate
Let’s say you lease a car with a purchase price of $45,000 (including GST and stamp duty):
Taxable value = $45,000 × 20% = $9,000
FBT = $9,000 × 2.0802 (gross-up rate) × 47% (FBT rate)
FBT liability = $8,786.04 annually
No need to log trips. It’s a flat rate, which simplifies things.
2. Operating Cost Method (For higher business use vehicles)
Do you prefer a method that reflects actual usage? This one’s based on the vehicle’s running costs (fuel, servicing, depreciation, etc.) and your percentage of private use.
Formula:
FBT = (Total running costs × Private use %)
Let’s say your vehicle’s operating cost over the year is $14,000, and you used it 30% for private use. That’s $4,200 in taxable value.
This approach works best for people who use their car mostly for work. However, it requires a 12-week logbook for proof to the ATO of the business use percentage..
Using the Employee Contribution Method to Offset FBT
This is the most effective way to reduce your FBT liability to zero and is used by Vehicle Solutions in 100% of all cases so that you never have any tax issues or payments to make at the end of the FBT tax year. The employee contribution method lets you make after-tax contributions toward your running costs to the value of the FBT..
These post-tax contributions reduce the taxable value of the car fringe benefit. If you contribute enough, you eliminate the need for your employer to pay FBT altogether.
For example:
If your lease attracts $3,000 in fringe benefits tax FBT, and you make $3,000 in after tax contributions, the FBT drops to zero.
Novated Lease FBT Example: Petrol vs EV
Let’s compare two scenarios to show how FBT applies in real life:
Petrol Vehicle:
- Purchase price: $45,000
- Statutory method taxable value: $9,000
- FBT (after gross-up and 47% rate): ~$8,786/year
- You can reduce this with post-tax contributions
Electric Vehicle (EV):
- Purchase price: $60,000
- Qualifies for FBT exemption (under luxury car tax threshold and first used after 1 July 2022)
- FBT liability: $0
Takeaway: An EV novated lease can potentially save you $8,000–$10,000 a year, just on FBT alone.
Are Electric Vehicle Novated Leases FBT Exempt?
Yes—under current rules, certain electric cars qualify for full FBT exemption under a novated lease.
To qualify:
- Vehicle must be electric (battery EV, hydrogen fuel-cell, or plug-in hybrid)
- The purchase price must fall under the luxury car tax threshold ($91,387 for FY 2024–25)
- First held/used after 1 July 2022
So if you’re leasing a Tesla Model 3, BYD Seal, or Polestar 2 via Vehicle Solutions Australia, and the lease agreement fits the criteria, you won’t pay a cent in FBT.
This exemption is part of the Electric Car Discount policy and has been a game-changer for cost-conscious employees who want to make the switch to EVs.
Fringe Benefit vs Income Tax: What’s the Difference?
Here’s where many people get confused:
- Fringe benefit: A non-cash benefit (like a vehicle lease) provided by your employer
- Income tax: What you pay on your taxable income
Even though the employer pays FBT, the reportable fringe benefit amount (RFBA) still appears on your income tax return. It doesn’t increase the tax you owe directly, but it can impact:
- HECS/HELP repayments
- Child care subsidies
- Medicare levy surcharge
- Family Tax Benefits
So even if FBT is “off your hands,” it can still affect your broader financial picture.
Planning Around the FBT Year
A quick tip: the FBT year ends on 31 March. So if you’re considering a new novated lease, timing your vehicle delivery before this date could maximise your first-year benefits or secure an FBT exemption under tighter deadlines.
Why Use Vehicle Solutions Australia?
We make the novated lease FBT process simple, transparent, and tailored to your needs. Whether you’re looking to lease an EV and pay zero FBT or want help comparing lease payments and methods, we offer clear guidance backed by real numbers, not guesswork.
We also partner with Motorbuys, our car-sourcing platform, to get you the best purchase price on your preferred model.
Frequently Asked Questions
Do I pay FBT on a novated lease?
Not directly. Your employer is responsible for the FBT liability, but it’s usually factored into your salary package. You can reduce or remove this cost using after tax contributions.
Are EV novated leases exempt from FBT?
Yes, if the EV meets government criteria. That includes being under the luxury car tax threshold and first held after 1 July 2022. This can save thousands per year.
How much is FBT on a novated lease?
It depends on the purchase price, usage, and calculation method. Under the statutory formula method, FBT on a $45,000 car is approximately $8,600 to $9,000 per year, unless reduced by employee contributions or electric vehicle (EV) exemptions. This assumes 20% of the car’s base value is used to calculate the taxable value, as per ATO guidelines.
Can I use post-tax contributions to reduce FBT?
Absolutely. The employee contribution method is one of the most effective ways to reduce your taxable value and wipe out your FBT liability.
Which FBT calculation method is better?
For simplicity, most people use the statutory formula. But if you drive mostly for work, the operating cost method may be more tax-efficient.
Final Thoughts
FBT on novated lease isn’t a penalty—it’s just part of the rules. But with smart structuring, you can reduce or eliminate it. Whether it’s using the employee contribution method, switching to an FBT-exempt electric vehicle (EV), or choosing the right salary sacrifice arrangement, the key is understanding how it all works—and getting advice when needed.
Vehicle Solutions Australia is here to help you do exactly that—with a no-nonsense, competitive leasing process that makes the most of your money.
Thinking of a novated lease but unsure about FBT? Get in touch with our experts or browse EVs and petrol vehicles on Motorbuys and compare your real-world savings.
