How to get a novated lease for an electric car
If you're thinking about getting a novated lease, the very first question to ask yourself is ‘am I open to getting an electric car?’
Now, it’s up to everyone what car suits them. But you should at least consider this as an option, because the incentives for EV novated leases are ridiculous. For example, if you're looking at a $49k Mazda CX5, once you actually go through the numbers, you'll find it could end up costing less to get a Tesla.
The tax incentive is so generous that it's cheaper to pay for an EV and cover every cent of running costs through a novated lease term than it is to pay for the exact same car with cash, including the residual payment. Insane, right? It comes down to fringe benefits tax on the lease.
What’s the fringe benefits tax exemption on EV novated leases?
Basically Australia has been way behind other countries for take-up of electric cars. The government introduced a change to the law incentivising EV ownership by making them exempt from fringe benefits tax (FBT). That includes EV novated leases.
FBT is essentially a tax on employee perks. But because there is no longer FBT on EV novated leases, you can make 100% of the payments on the lease using your pre-tax salary. That is huge.
Put another way, you now get a discount on the full cost of your car and all the running costs equal to whatever your marginal tax rate is. That’s anywhere between 19% and 45% depending on your salary.
Plus, you still get the GST discount and running expenses that you get with a standard lease.
To put that into perspective, if you go out and get like a 60 or 70 grand Tesla on a five-year lease, it’ll cost somewhere around $200 and $260 a week, with all your running costs included. Before that exemption kicked in, that same car would have been about $500 a week or close to it.
Now you see why you should ask people if you’re open to an EV?
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EV novated lease example: Tesla Model 3 (Long Range)
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* Calculation assumes a driver in NSW, driving 15,000km per year. Running costs include electricity, comprehensive car insurance, registration and CTP, servicing and tyres. Car finance rate assumed to be 7.50% p.a.
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What are the rules for the EV novated lease FBT exemption?
There are a few main eligibility criteria that apply to this exemption.
EVs and PHEVs only
It only applies to fully electric vehicles and plug-in hybrid electric vehicles (PHEVs). Mild hybrids (ones you don’t need to plug in, like a RAV4) don’t qualify.
Vehicle capacity
The vehicle must only have capacity to carry a load of less than 1 tonne and fewer than nine passengers.
Car cost
The car needs to cost less than $89,332 (the luxury car tax limit) including costs like delivery and extras added to the car, but excluding government costs like stamp duty.
PHEV deadline
The exemption for PHEVs will expire on 1 April 2025 but leases on PHEVs that started before then will continue to be eligible.
After 1 July 2022
The car must have been ‘used for the first time on or after 1 July 2002’ - this essentially rules out used EVs that were in use before that date.
Some costs excluded
All car payments and related running costs are included but you can’t cover expenses like installing a home charger.
How to get the best EV novated lease
The incentives on EV novated leases are remarkably good. But it’s still a big commitment and you should weight up the novated lease pros and cons like you would with any vehicle.
These are some of factors to think about to make sure you get the best deal possible.
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1. Pick your lease term carefully
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Make sure you pick a suitable lease term. While it’s remarkably easy to charge an EV at home and when you’re out and about. The charging infrastructure and battery technology is improving all the time. But it’s still different from a standard petrol engine car. If you take out a five-year lease, and decide a year into it that, you know what, an EV really isn’t for me right now, it will be very expensive to break that lease.
EV tech is also changing fast (some call them iPhones on wheels) - a shorter lease also means you can upgrade sooner.
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2. Remember, the FBT exemption will be reviewed in 2027
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Another thing to watch out for is the timeline for the FBT exemption. The government has said it will review the exemption in mid 2027. Who knows what will happen then, but one approach could be to look at a lease term that expires before that review happens. This will give you the option to start a new lease or extend the current one before the exemption is potentially removed.
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3. Make sure your running cost budgets are accurate
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Overall your running costs should be lower than a petrol or diesel car because paying for electricity is much cheaper. But some costs on EVs are no different to non-EVs and can even be higher. Like replacing the tyres on a Tesla ($$$). You want to make sure your novated lease budget will account for that properly.
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4. Don’t get an expensive EV for the sake of it
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The more you spend on the car, the more you will save in tax. But a novated lease is still a cost and you’ll still have more money in your pocket if you get a cheaper EV. Teslas are extremely popular right now, but something like a BYD Atto 3 will cost you around $50 less per week.
What a novated lease does give you is the option to upgrade to a more expensive car – if for whatever reason that’s what makes sense for you – without feeling the full impact of the higher cost.
But one area you absolutely should not be prepared to pay more that you need to is on the cost of the lease itself. That means the admin fees, interest on the ease and other finance costs, plus the rubbish add-on insurance some novated lease providers try to sell you. You can also pay for these costs using pre-tax salary but avoiding unnecessary costs is still a much better outcome for you.
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