If you are a Melbourne employee earning above $45,000 and your employer offers salary packaging, a novated lease on an eligible battery electric vehicle (BEV) is currently one of the most tax-effective ways to finance a car in Australia. The federal government's EV Fringe Benefits Tax (FBT) exemption — introduced from 1 July 2022 — removes all FBT liability on eligible zero-emission vehicles provided through a salary packaging arrangement, meaning the full lease and running costs are deducted from your pre-tax salary with no FBT offset required. The result: typical savings of $12,000–$25,000 over a three-year lease term, depending on your income and the vehicle's cost.
With the end of the 2025–26 financial year just 18 days away, June is also the time when Melbourne employers and HR teams typically review salary packaging arrangements — and when employees who have been sitting on the decision should act. This guide covers everything you need to know: how the FBT exemption works, which cars qualify in 2026, the important PHEV cut-off that many people have missed, what Melbourne SME owners need to know about offering novated leasing to staff, and the traps that can surprise first-time lessees.
Key stat: A $55,000 EV novated lease saves a Melbourne employee on a $100,000 salary approximately $5,000–$8,000 per year compared to buying the same car outright after tax — because no FBT is payable and all lease and running costs come from pre-tax salary. Over a 3-year term, that is a total saving of roughly $15,000–$24,000 (illustrative; speak to your accountant for your specific situation).
What Is a Novated Lease and How Does the EV FBT Exemption Work?
A novated lease is a three-way salary packaging arrangement between you (the employee), your employer, and a finance company. Your employer makes the lease repayments on your behalf by deducting them from your pre-tax salary before income tax is calculated — which lowers your taxable income. Normally, providing a car benefit to an employee generates a Fringe Benefits Tax (FBT) liability for the employer, calculated at 20% of the car's cost × the 47% FBT rate. On a $55,000 car, that is $5,170 per year in employer FBT — a cost that is typically either passed to the employee via the Employee Contribution Method (ECM) or shared by the employer.
The EV FBT exemption, introduced under the Treasury Laws Amendment (Electric Car Discount) Act 2022, removes this FBT liability entirely for eligible vehicles. There is no FBT to pay, no ECM post-tax contribution required, and no cap on the value of running costs that can be salary sacrificed. Every dollar of lease repayments, registration, insurance, servicing, tyres, charging electricity, and roadside assistance that passes through your pre-tax salary saves you your marginal tax rate — plus GST, because the lease company claims the GST credit and passes the saving back to you through lower effective costs.
The mechanism works as follows. Three parties sign a deed of novation. The finance company purchases the vehicle. Your employer makes regular pre-tax salary deductions that cover both the lease finance and a running costs "budget." At lease end, a residual (balloon) payment — set by the ATO as a minimum percentage of the original vehicle cost — becomes payable. You can pay this to own the car outright, re-lease the same vehicle, or trade in and start a new lease.
For a deeper look at how we structure business and personal vehicle finance across Melbourne, see our car and asset finance page.
How Much Can a Melbourne Employee Actually Save in 2026?
The saving from an EV novated lease comes from three sources: income tax saved on salary sacrificed amounts (lease payments and running costs), FBT eliminated on the car benefit itself, and GST savings on the vehicle purchase price and running costs. The exact saving depends on your income, the vehicle's cost, and the lease term. The table below shows illustrative annual savings for common Melbourne income levels on a $55,000 EV over a 3-year novated lease. These are estimates only — your accountant will give you a precise figure.
| Annual income | Marginal rate (incl. Medicare) | Est. income tax saving/yr | FBT saving/yr (employer-side) | GST saving/yr (running costs) | Approx. total saving/yr |
|---|---|---|---|---|---|
| $75,000 | 32% | ~$6,400 | ~$5,170 | ~$1,100 | ~$12,670 |
| $100,000 | 32% | ~$6,400 | ~$5,170 | ~$1,100 | ~$12,670 |
| $140,000 | 39% | ~$7,800 | ~$5,170 | ~$1,100 | ~$14,070 |
| $200,000 | 47% | ~$9,400 | ~$5,170 | ~$1,100 | ~$15,670 |
Illustrative estimates based on a $55,000 BEV, 3-year term, approximately $20,000/yr total salary sacrifice (lease + running costs), 2025–26 tax rates. Assumes employer fully passes FBT saving to employee via lower ECM. Income tax brackets: 30% ($45,001–$135,000) + 2% Medicare = 32%; 37% ($135,001–$190,000) + 2% = 39%; 45% ($190,001+) + 2% = 47%. Does not include one-off GST saving on vehicle purchase (~$5,000 on a $55k car). This is general information — not personal tax advice. Speak to your accountant before proceeding.
For higher earners, the savings grow significantly. A Melbourne professional on $200,000 salary leasing a $75,000 EV (just under the LCT threshold) over five years can save well over $80,000 in total compared to buying the same car outright with after-tax money — a transformational financial outcome for a major asset decision. This is also relevant context when your Melbourne mortgage strategy involves maximising cash flow, as we often discuss with clients refinancing their home loans alongside vehicle finance decisions.
Which Electric Vehicles Qualify for the FBT Exemption — and What Changed for PHEVs?
For the 2025–26 financial year, any battery electric vehicle (BEV) or hydrogen fuel cell vehicle (FCEV) with a first retail sale price below the luxury car tax (LCT) threshold for fuel-efficient vehicles qualifies for the FBT exemption. The LCT threshold is $91,387 for FY 2025–26. Both new and used vehicles qualify, provided the vehicle was not held or used before 1 July 2022. The threshold applies to the drive-away price, not just the manufacturer's recommended retail price — factor in dealer delivery charges and accessories.
| Vehicle | Approx. drive-away (Melbourne) | FBT exemption eligible? |
|---|---|---|
| BYD Dolphin | $38,000–$43,000 | ✅ Yes |
| MG4 | $34,000–$41,000 | ✅ Yes |
| BYD Atto 3 | $46,000–$50,000 | ✅ Yes |
| BYD Seal | $50,000–$56,000 | ✅ Yes |
| Tesla Model 3 RWD | $55,000–$59,000 | ✅ Yes |
| Tesla Model Y RWD | $58,000–$63,000 | ✅ Yes |
| Hyundai Ioniq 5 | $60,000–$67,000 | ✅ Yes |
| Kia EV6 | $62,000–$68,000 | ✅ Yes |
| Volvo EX30 | $56,000–$63,000 | ✅ Yes |
| Polestar 2 | $62,000–$70,000 | ✅ Yes |
| Tesla Model Y Performance | $73,000–$77,000 | ✅ Yes (check options) |
| BMW iX / i7 | $100,000+ | ❌ Exceeds LCT threshold |
| Tesla Model S / X | $130,000+ | ❌ Exceeds LCT threshold |
| Mitsubishi Outlander PHEV | $48,000–$58,000 | ❌ PHEV — new leases ineligible from 1 April 2025 |
| MG HS Plus EV (PHEV) | $44,000–$48,000 | ❌ PHEV — new leases ineligible from 1 April 2025 |
Prices are approximate as at June 2026 and change frequently. Always verify the current drive-away price with the manufacturer or dealer before committing.
The PHEV cut-off you cannot afford to miss
Plug-in hybrid electric vehicles (PHEVs) — vehicles with both an electric motor and an internal combustion engine — lost eligibility for the FBT exemption on new novated lease arrangements entered from 1 April 2025. This was not a budget surprise; it was written into the original 2022 legislation as a scheduled phase-out. However, many Melbourne employees and HR teams are still unaware of the change.
If you signed a PHEV novated lease arrangement before 1 April 2025, your exemption is grandfathered for the life of that specific arrangement. If you are considering a PHEV novated lease today, full FBT applies — meaning the employer's FBT liability must be offset through post-tax Employee Contribution Method payments, which significantly reduces the financial benefit. In most cases, PHEVs no longer make sense as a novated lease vehicle. You are better off financing a PHEV through a standard car loan or chattel mortgage and considering whether a pure BEV suits your driving needs.
What is changing from 1 April 2027?
The government has announced a two-phase structure for the BEV FBT exemption. From 1 April 2027: BEVs with a first retail sale price under $75,000 retain the full FBT exemption; BEVs priced between $75,000 and the LCT threshold ($91,387 for FY 2025–26, indexed annually) will receive a 25% FBT discount rather than full exemption. This is not yet law — the legislation must pass Parliament — but it is worth factoring into a vehicle choice decision today, particularly if you are considering a higher-priced Tesla or Kia EV6 GT.
What Are the Novated Lease Traps Melbourne Employees Need to Know?
A novated lease on a BEV is genuinely advantageous for most Melbourne employees earning above $45,000 with access to salary packaging — but there are several traps that providers and car dealers rarely emphasise upfront. Understanding these before you sign protects you from unexpected costs and obligations.
The Reportable Fringe Benefit (RFB) and your HECS debt
Even though no FBT is payable on an exempt EV, the benefit must still be reported on your income statement as a Reportable Fringe Benefit (RFB). The RFB amount is calculated as: vehicle cost × 20% statutory fraction. On a $55,000 car, that is $11,000 added to your adjusted taxable income (ATI) each year — not taxed directly, but included in assessments for HECS-HELP repayment thresholds, Medicare Levy Surcharge, Family Tax Benefit, and child support calculations. If you carry a HECS-HELP debt or receive income-tested government payments, model this carefully with your accountant before signing.
ATO minimum residual values — the balloon you must plan for
The ATO sets minimum residual values as a percentage of the vehicle's original cost. These are the balloon payments due at lease end, and you must have a plan for them:
| Lease term | ATO minimum residual | Residual on a $55,000 EV |
|---|---|---|
| 1 year | 65.63% | $36,097 |
| 2 years | 56.25% | $30,938 |
| 3 years | 46.88% | $25,784 |
| 4 years | 37.50% | $20,625 |
| 5 years | 28.13% | $15,472 |
At lease end you can pay the residual from your own savings (after-tax) to own the car, re-lease the same vehicle (starting a new novated lease), trade the car in and begin a new lease on a different vehicle, or in some arrangements, hand the car back if the provider allows it. Do not assume EV residual values will stay high — battery technology and software updates can accelerate market depreciation for older models. The safest approach is to plan for the cash outflow before you sign.
Changing jobs mid-lease
Changing employers does not terminate your novated lease, but it does interrupt the salary packaging arrangement. Your options are to transfer the novation to your new employer (if they offer salary packaging — ask before you accept the new role), continue payments personally at after-tax rates while you arrange a transfer, or refinance to a standard car loan. Most Melbourne employees successfully transfer to their new employer, but some providers charge re-novation fees of $200–$500, and some smaller employers in Melbourne do not offer salary packaging at all.
The total cost rule — not the business-use portion
Unlike a chattel mortgage used for business vehicles, the FBT exemption threshold test is applied against the vehicle's total cost — not just your personal-use portion. A car at $92,000 drive-away (above the LCT threshold) does not qualify even if you use it 80% for work. Always verify the drive-away price before signing, not just the MSRP.
Can Melbourne SME Owners Offer Novated Leasing to Staff — and Should They?
Yes — novated leasing is available through any Australian employer regardless of size, including sole traders and small businesses. You do not need to be a large corporation or government department. If you are a Melbourne business owner or operator, offering novated leasing to your staff is largely cost-neutral and can meaningfully improve your ability to attract and retain employees without increasing your direct payroll costs.
Here is why it works for both sides. As an employer, you deduct the lease payment from the employee's pre-tax salary before PAYG withholding is calculated. Your total payroll cost for that employee does not increase — in fact, it may decrease marginally because you are paying superannuation on a lower gross salary (though confirm this with your accountant as salary sacrifice and super interaction can be nuanced). You also do not pay the FBT that would otherwise apply to a company car benefit, because the EV exemption eliminates it. The salary packaging provider manages the administration — you simply instruct payroll to make the deductions.
For employees, the benefit is significant: access to a new EV with running costs included, paid from pre-tax salary, with no outlay required beyond their normal salary deduction. For Melbourne trades businesses, construction SMEs, professional services firms, and any employer competing for talent in a tight Melbourne labour market, novated leasing is a genuinely useful recruitment and retention tool.
To set up a novated leasing program for your Melbourne business, you engage a salary packaging provider — major national providers include Maxxia, SG Fleet, SmartLeasing, and Autopia — and your payroll system processes the deductions. The provider handles the lease agreement, running costs budget, and vehicle administration. You are not exposed to any vehicle asset or liability on your balance sheet.
If you are a Melbourne SME owner and this sits alongside your broader business finance strategy — including working capital, equipment finance, or commercial property — IFG can help you see the full picture. Many Melbourne business owners also find value in understanding how personal vehicle finance decisions interact with their commercial finance structure.
Does EOFY Matter for a Novated Lease — and When Should Melbourne Employees Act?
EOFY is not a hard financial deadline for novated leasing the way it is for the instant asset write-off — you can start a novated lease at any time of year. However, June is strategically important for several reasons that make this the best time for Melbourne employees and employers to act.
First, June is when many Melbourne employers conduct annual HR and salary review processes. Raising novated leasing at your next salary review conversation is both timely and practical — you can negotiate salary package restructuring at the same time. Second, car manufacturers and dealers offer notable EOFY deals in June to clear stock ahead of July's new registration month. In 2026, BYD, Nissan, Hyundai, and other EV manufacturers are offering fleet discounts of 3–7% for novated lease customers settling in June — savings of $1,500–$5,000 on popular models. Third, starting your lease in June means you begin generating pre-tax salary sacrifice deductions and income tax savings for the current financial year, maximising the tax benefit for FY 2025–26.
EOFY EV tip: The June 30 deadline matters most if you want to claim this year's salary sacrifice deductions in your FY 2025–26 tax return. A lease starting in July achieves the same long-term benefit but shifts income tax savings to FY 2026–27. If you are considering any additional pre-EOFY asset deductions, also review our article on the $20,000 instant asset write-off — particularly relevant if you run a Melbourne business and need a vehicle for work purposes.
What Should Melbourne Employees Do Before 30 June 2026? Step-by-Step
If you want to start an EV novated lease before EOFY, the practical timeline is tight but achievable. Here is a realistic step-by-step guide for Melbourne employees acting in the next 18 days.
- Confirm your employer offers salary packaging. Ask HR or payroll today — specifically ask which salary packaging provider your employer uses. If your employer does not currently offer it, ask whether they would consider it; setup is straightforward and cost-neutral for them.
- Choose your EV and confirm the drive-away price is under $91,387. If you are planning to include accessories or a home EV charger in the lease, confirm these are included within the provider's cap (typically $3,000–$5,000 for charger bundling).
- Get a novated lease quote. Contact the provider directly through your employer's salary packaging portal or directly. The quote will show your fortnightly pre-tax deduction, running costs budget, residual amount, and estimated take-home pay impact. Ask for the comparison rate on the lease finance.
- Check the RFB impact on your HECS-HELP and Medicare. Calculate vehicle cost × 20% to find your reportable fringe benefit. Add this to your current income to see if it affects your HECS repayment rate or Medicare Levy Surcharge threshold.
- Speak to your accountant. Confirm your specific tax saving, check for any interaction with other income-tested obligations, and make sure the lease structure is appropriate for your situation.
- Sign the deed of novation and order the vehicle. For EOFY June 30 delivery, you typically need to sign by mid-June. If delivery falls after June 30, your salary sacrifice deductions begin in FY 2026–27 — still valuable, just in the next financial year.
If you are looking for broader financial context — particularly if you own a Melbourne home and are juggling a mortgage, potential investment property plans, and now vehicle finance — IFG can help you look at the full picture. Many clients we work with at our Coburg North office are managing both a home loan and asset finance simultaneously, and the interactions between salary sacrifice, borrowing capacity, and serviceability are worth understanding before you commit.
Thinking About a Novated Lease? Talk It Through With IFG
Brian and Frank have helped hundreds of Melbourne employees and SME owners structure vehicle and asset finance that fits their broader financial picture. A free 15-minute call costs nothing and could clarify whether an EV novated lease, chattel mortgage, or standard car loan is the right choice for your income and goals.
Frequently Asked Questions
What is the EV FBT exemption for novated leases in Australia?
The EV FBT exemption means employers pay zero Fringe Benefits Tax on an eligible battery electric vehicle or hydrogen fuel cell vehicle provided through a novated lease. Introduced from 1 July 2022, the exemption applies as long as the vehicle's first retail sale price is below the luxury car tax threshold for fuel-efficient vehicles — $91,387 for FY 2025–26. All lease repayments and running costs can be deducted from the employee's pre-tax salary with no post-tax offset required.
Which electric vehicles qualify for the FBT exemption in Australia 2026?
Any battery electric vehicle (BEV) or hydrogen fuel cell vehicle (FCEV) with a drive-away price under $91,387 qualifies. Popular eligible models include the Tesla Model 3, Tesla Model Y RWD, BYD Atto 3, BYD Seal, BYD Dolphin, MG4, Hyundai Ioniq 5, Kia EV6, Volvo EX30, and Polestar 2. Plug-in hybrids (PHEVs) lost eligibility for new arrangements from 1 April 2025. Always verify the current drive-away price with the dealer as the LCT threshold is indexed annually.
Can Melbourne small business owners offer novated leasing to staff?
Yes. Novated leasing is available through any Australian employer regardless of size. As a Melbourne SME owner, offering salary packaging is largely cost-neutral: your payroll costs do not increase and you do not pay FBT on the EV benefit. The salary packaging provider manages the administration. Many Melbourne businesses use novated leasing as a low-cost staff benefit to attract and retain employees in a competitive market.
Does a novated lease EV affect my HECS repayments?
Yes. Even though no FBT is payable on an eligible EV, the notional value of the benefit — calculated as vehicle cost × 20% statutory fraction — is reported as a Reportable Fringe Benefit (RFB) on your income statement. This RFB amount is added to your adjusted taxable income for HECS-HELP repayment threshold assessments, which can push you into a higher repayment bracket. Speak to your accountant before proceeding if you carry a HECS-HELP debt.
Did the PHEV FBT exemption end in 2025?
Yes. Plug-in hybrid electric vehicles (PHEVs) lost FBT exemption eligibility for new novated lease arrangements entered from 1 April 2025. Existing PHEV novated leases entered before that date are grandfathered for the life of that arrangement. Only battery electric vehicles (BEVs) and hydrogen fuel cell vehicles qualify for new FBT-exempt arrangements from 1 April 2025 onwards.
General advice disclaimer: General information only. This article does not constitute financial or tax advice. Novated lease, FBT, and salary sacrifice treatment varies significantly by individual circumstances, employer agreement, and applicable legislation. Please speak with a qualified finance broker and your registered tax agent or accountant before making any vehicle finance decisions. Integrated Finance Group — BLSSA Pty Ltd ACL 391237. Brian Hermosilla, Credit Representative 485802. Frank Marin, Credit Representative 486546. MFAA Members Brian #716100, Frank #242075.