When comparing list prices, electric vehicles (EVs) are still often more expensive than comparable combustion-powered vehicles.
When it comes to novated leasing, however, it’s a different ballgame – and EVs often come out ahead.
That’s because fringe benefits tax (FBT) currently isn’t payable on new electric or plug-in hybrid vehicles if they’re used by a current employee or their associates (such as family members) and fall under the luxury car tax (LCT) threshold.
The LCT threshold for so-called “fuel efficient vehicles” for the 2024/25 financial year is $91,387.
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First, just what is a novated lease?
Put simply, it’s a three-way agreement between you, your employer, and a finance or leasing company that could reduce your tax obligations.
It’s a form of salary sacrificing, with your vehicle payments deducted from your pay before taxes are deducted. Despite this, you’re still allowed 100 per cent personal use of the vehicle, and you can even modify your car upfront and bundle the cost of accessories into the total cost of the vehicle.
This fact also means you should skirt paying GST, as your employer can claim an input tax credit of up to $6191 before billing you.
Not only that, but novated lease payments include running costs such as insurance, servicing, fuelling or charging, tyres, and registration.
Novated leasing usually reduces your tax obligations, but it’s considered a fringe benefit. That means your employer has to pay FBT, which is charged at 47 per cent, with the taxable value being 20 per cent of the car’s cost.
With the FBT not applying to electric vehicles, however, this makes them a more appealing prospect for novated leases.
For example, according to Australian-owned and operated novated leasing provider Oly, a MG ZS EV Long Range ends up costing less to lease than a base Suzuki Ignis… despite the Suzuki having a drive-away price around $20,000 less than the MG.
Below are figures based on a person in Victoria earning $130,000 a year and planning to travel 15,000km a year with a lease term of five years.
MG ZS EV LRSuzuki IgnisVehicle drive-away price$46,990$25,286Upfront GST payable on vehicle price$4034.11$2140.44Weekly payment (incl. running costs, GST)$253.51$190.15Approx. weekly tax, GST savings$110.25$43.47Net cost per week$143.26$146.68Net cost over five years$37,247.60$38,136.80Approx. saving over 5 years$28,665.25$11,303.40
There are a few more things to know about novated leasing.
Lease payments are bundled with running costs such as insurance, servicing, fuelling or charging, tyres, and registration. That means the costs are part of your salary sacrificed payments, boosting the tax benefit.
You can even modify your car upfront and include the cost in the overall lease.
Lease periods are typically between one and five years and have a predetermined expected annual mileage.
Once you reach the end of the period, you can either pay the residual or balloon payment – which on a five-year lease is about 28 per cent of the vehicle price – and keep the car.
Alternatively, you can refinance the amount or trade in the car and trade up into another lease.
If you change jobs, a novated lease could be transferable if your new employer is willing to take it on, otherwise you’ll need to make lease payments directly.
The Australian Government hasn’t offered direct subsidies on the purchase price of EVs, and state incentive programs offering these have largely dried up.
However, the Electric Car Discount does offer those interested in an EV (or a PHEV, at least for the time being) an enticing option.
Disclaimer: The information on this website is for general purposes only and not a substitute for professional financial advice. CarExpert recommends seeking independent legal, financial, taxation or other advice unique to your individual circumstances.
