Save on EVs with a Novated Lease Tax Break

Electric vehicle sales are soaring in Australia thanks to a tax exemption that makes novated leases more attractive. This tax break, introduced in 2022, eliminates fringe benefits tax on eligible EVs, significantly reducing costs for employees who salary package their cars. However, changes are coming that could limit some benefits, making now a crucial time to act.

Novated leases allow employees to finance a car using pre-tax salary, covering expenses like insurance, registration and servicing in one payment. These arrangements are popular with workers looking to lower taxable income while enjoying predictable car costs. Typically, the lease runs for 4 years, after which many drivers roll into a new lease rather than pay a final lump sum to own the car outright.

To qualify for the EV tax break, the car must cost less than $91,387 and be fully electric or a plug-in hybrid (until March 31, when hybrids lose eligibility). The exemption can save buyers thousands each year - on a $60,000 EV, for example, avoiding fringe benefits tax means yearly savings of roughly $5,000. This policy aims to bridge the price gap between petrol and electric vehicles and speed up EV adoption.

While the increased take-up of novated leases has cost the government more in lost tax revenue than expected - now estimated at $564 million annually - the tax break remains in place for full EVs. The scheme will be reviewed in 2027, but any potential changes are likely to be gradual. For now, employees with existing EV leases remain protected under current exemptions.

Source: Australian Financial Review, VehicleSolutions