If you’ve heard the term “novated lease” and quietly moved on because it sounded too complex, you’re not alone. But if your household is thinking about a new car — especially an electric vehicle — this is one tax strategy that’s genuinely worth understanding. And as we’ll explain, it’s not just the employee who benefits. Your spouse or partner can too.
Let’s Start Simple: What Is a Novated Lease?
A novated lease is an arrangement between you, your employer, and a finance company. Instead of buying a car out of your after-tax pay, your employer bundles your car costs — repayments, insurance, registration, fuel or charging, and maintenance — and pays them from your pre-tax salary.
| 💡 | Think of it like buying groceries, but before the tax office takes its share of your pay. You end up with the same car for significantly less of your own money. |
For a person earning $120,000 a year, the tax saving on a typical EV novated lease can easily reach $5,000 or more per year — just from reducing the amount of income that gets taxed.
The Old Problem: The “Sharing Fee” Nobody Wanted
Here’s where it used to get complicated. When your spouse or partner drove the car for personal trips — school runs, weekends away, daily errands — the Australian Tax Office considered that a “fringe benefit.” This triggered Fringe Benefits Tax (FBT), a charge that could wipe out much of the saving you’d just worked hard to create.
In other words, sharing the car with your partner used to come at a real cost.
The Game-Changer: The Electric Vehicle FBT Exemption
In late 2022, the Australian Government introduced a landmark change: eligible electric vehicles are now completely exempt from Fringe Benefits Tax.
| ⚡ | Your spouse or partner can drive the car for any personal purpose — every day if they like — and it triggers absolutely no FBT. The household keeps the full tax benefit, regardless of who is behind the wheel. |
To put it another way: it’s like having a members-only discount that the whole family gets to use, even though the membership is only in one person’s name.
What This Looks Like in Practice
Let’s say Andrew earns $120,000 a year and takes out a novated lease on a $65,000 electric vehicle. The annual lease and running costs bundled into the package come to around $15,000.
| Without Novated Lease | With EV Novated Lease | |
| Gross Salary | $120,000 | $120,000 |
| Pre-tax car costs | $0 | ~$15,000 / year |
| Taxable Income | $120,000 | $105,000 |
| Estimated Tax Saving | — | ~$5,250 / year |
| FBT on spouse’s personal use | Yes (petrol car) | $0 — EV Exempt |
Andrew’s spouse, Jordan, drives the car to work, picks up the kids, and uses it on weekends. Under the old rules with a petrol car, this personal use would have generated an FBT liability. Under the EV exemption, Jordan drives freely — and the household keeps every dollar of that tax saving.
The Practical Benefits for Your Household
- Both partners enjoy the car, only one needs the lease — the spouse can use the vehicle as their primary car without any tax consequences for the household.
- Running costs are covered pre-tax too — charging costs, insurance, registration, and servicing are often bundled into the pre-tax payment, effectively discounted by your marginal tax rate.
- The whole household budget improves — when one partner pays less tax, the family’s overall take-home position improves. That extra cash flow can go toward savings, a mortgage, or simply reducing financial pressure.
- No complicated tracking required — because the EV exemption removes the need to log private versus business kilometres for FBT purposes, there’s far less administrative burden than traditional arrangements.
A Few Important Things to Know
- The vehicle must be a battery electric or hydrogen fuel cell vehicle to qualify for the FBT exemption.
- The car’s value must fall below the luxury car tax threshold (currently $91,387 for the 2025–26 financial year) to be eligible.
- Under Australia’s freshly signed Free Trade Agreement with Europe, a third category has been established for zero-emissions vehicles with a tax threshold set at $120,000.
- The exemption applies to new and second-hand EVs, provided the car has not previously been subject to a novated lease.
- Plug-in hybrids (PHEVs) are lost their FBT exempt status from 1 April 2025, so now it’s fully electric vehicles only.
Is This Right for Your Family?
The answer depends on your income, your employer’s salary packaging arrangements, and which vehicle you have in mind. The savings can be significant, but so can the variables — which is exactly where good advice makes a difference.
Our team works with clients to model the real numbers for their specific situation, so you’re not making decisions based on rough estimates.
| 📞 | If you’d like to understand whether an EV novated lease makes sense for your household, we’d love to chat. Contact us today to book a consultation. |
| Disclaimer: This article is intended as general information only and does not constitute financial or tax advice. Please speak with one of our advisers regarding your personal circumstances. |