The quote shows the tax saving and buries the residual. A novated lease can be the cheapest way into an EV in the country, or a five-year loan dressed up in fees, and the difference sits in three lines most people never read. From April 2027, one more number joins them: $75,000.
This guide breaks down how a novated lease works, what it really costs against a loan or cash, and what the announced FBT changes mean if you sign before or after 1 April 2027. The figures are TorquePress worked examples, not quotes, and this is general information, not financial advice.
What Is a Novated Lease?
A novated lease is a three-way agreement between you, your employer and a finance company. You lease the car, and your employer pays the lease and running costs out of your salary before tax. You’re still on the hook for the lease, but the payments, insurance, charging, servicing and rego all come out in one bundled deduction.
How does the money actually move?
Two things make it cheaper than a loan. The package is paid from pre-tax salary, so it costs you less in take-home pay. And GST is claimed back on the car’s purchase price and on running costs, so you pay less for both. On a petrol car, you then pay part of it from after-tax salary to cover fringe benefits tax, the Employee Contribution Method, or ECM.
Electric cars skip that step. The ATO’s electric car exemption means an eligible EV attracts no FBT, so the whole package can run pre-tax. The car must be battery electric or hydrogen, first held and used from 1 July 2022, and priced under the luxury car tax threshold for fuel-efficient vehicles.
What Changes for EVs From 1 April 2027?
The full exemption stays until 31 March 2027. From 1 April 2027, only EVs costing $75,000 or less stay fully exempt, while dearer EVs below the LCT threshold get a 25 per cent discount. From 1 April 2029, every eligible EV moves to that 25 per cent discount, according to the ATO’s summary of the measure.
Source: ATO, updated 14 May 2026; PwC tax alert, 8 May 2026. The measure was not yet law at the ATO's last update. The 2026-27 LCT threshold for fuel-efficient vehicles is $91,661.
Three details matter. First, the change isn’t law yet: the ATO page, last updated 14 May 2026, says so plainly. Second, existing leases won’t be affected, and PwC notes this mirrors the plug-in hybrid wind-back. Third, nobody has yet confirmed exactly how the $75,000 is measured, so ask your provider before you sign.
Plug-in hybrids have already gone. Under ATO rules, PHEVs stopped counting as low-emissions cars from 1 April 2025, though PwC notes that cars under a financially binding commitment before then keep the exemption for the lease term. And the ceiling is still the luxury car tax threshold: $91,661 for fuel-efficient cars in 2026-27, per the ATO.
Novated Lease vs Car Loan vs Cash: The Real Numbers
On a $60,000 EV kept for five years, the novated lease wins at every income tested. TorquePress modelled the same car three ways, each ending with you owning it outright. Cash costs $85,000 including running costs, a loan costs $97,496, and the lease costs between $58,388 and $70,112, depending on salary.
Assumptions: $60,000 drive-away ($3,000 government charges); $5,000 a year running costs; 7.71% interest for both lease and loan (the car-loan comparison rate Smart uses); five-year term; 28.13% ATO residual paid after tax including GST; Maxxia's published $475 establishment and $200 annual fees; 2026-27 tax rates plus 2% Medicare levy. Cash ignores interest you could earn on the money. Illustrative only.
The higher your tax rate, the bigger the win, because every pre-tax dollar saves more. On a $80,000 salary the lease costs about $409 a fortnight, then a $16,962 residual at the end. On $220,000, the fortnightly cost drops to about $319.
Now look at the grey bars. Put a petrol car of the same price through a novated lease and FBT eats most of the benefit. On a $80,000 salary it costs $91,876, more than paying cash. That’s the five-year loan dressed up in fees, and it’s why the EV exemption is the whole story.
The $75,000 Line Is the Most Important Number in the Deal
From 1 April 2027, an EV costing $75,000 is fully exempt, and one costing $76,000 isn’t. Cross the line and FBT applies at a 15 per cent statutory rate, which is usually cancelled with after-tax ECM payments. On a $76,000 car, that moves about $11,400 a year out of your pre-tax package.
TorquePress approximation: tax saving lost on $11,400 a year (15% of a $76,000 base value) moved to post-tax pay, at 2026-27 rates plus Medicare levy. Ignores GST effects. How the $75,000 is measured is yet to be legislated.
That means a $1,000 dearer car can cost you $3,600 to $5,400 more every year. So don’t tick the premium paint or the bigger wheels before checking where the final price lands. If you’re eyeing an EV in the high $70,000s, timing matters too. Under the announced rules, existing leases keep the treatment they started with, so a lease that starts before 1 April 2027 avoids the line altogether.
The Three Lines Most People Never Read
Every quote leads with the tax saving. The money is in three other lines: the residual, the interest rate and the fees. Ask for all three in writing, alongside the comparison rate, before you compare one provider with another. A quote that won’t show them is telling you something.
The residual
The residual is a lump sum due at the end of the lease, set by the ATO. Maxxia lists the minimums at 65.63 per cent for one year down to 28.13 per cent for five, and it’s paid from after-tax money, including GST. If the car is then worth less than the residual, the gap is yours. Check EV depreciation before assuming you’ll trade out clean.
The interest rate and the fees
Providers rarely advertise novated rates, so ask for the comparison rate. Fees vary: Maxxia’s calculator assumes a $475 establishment fee and $200 a year in management fees, both including GST. Also ask whether any brokerage or extra margin is built into the amount financed. It sits inside the loan, not on the fee line, so it’s easy to miss.
Also note how payments run. Easi explains that a 60-month lease is usually paid in 58 instalments because of a two-month deferral, so each payment is slightly higher. That’s normal, but it means the fortnightly figure on a quote isn’t the whole story either.
Running Costs, Insurance and the Fine Print
Running costs are budgeted and deducted every pay, then reconciled. Overestimate and you get money back; underestimate and you top up. Insurance is part of that budget, so check current EV insurance costs rather than trusting a placeholder. Whether a home charger can be packaged depends on your provider.
If you’re installing one anyway, compare home EV chargers before you commit, because cheaper overnight charging lowers the running-cost line all lease long. One more thing: even an exempt EV is a reportable fringe benefit, according to the ATO. It appears on your income statement and can affect income tests such as the Medicare levy surcharge.
Is a Novated Lease Worth It?
For a salaried employee buying an EV under $75,000, usually yes. In this example it beats a loan by between $27,384 and $39,108 over five years. It suits people with secure jobs who plan to keep the car for the full term and whose employer offers salary packaging.
It’s the wrong answer if your job is insecure, if you’d trade the car early, or if the car is petrol and you’re paying cash otherwise. It’s also wrong if your provider won’t show the rate and fees. Get two quotes, ask for the comparison rate, and check the car’s final price against the $75,000 line.
A novated lease isn’t a trick, and it isn’t a gift. It’s a tax structure with a residual stapled to the back. Read the last page of the quote before the first one, and the EV exemption can save you serious money. Skip it, and you’ve just bought a loan with extra paperwork.
This article is general information only and is not financial or tax advice. FBT changes from 1 April 2027 were announced in May 2026 and were not yet law at the time of writing. Get advice based on your own circumstances before signing a lease.
