Since the Australian Government introduced the Fringe Benefits Tax exemption for eligible electric vehicles, salary packaging an EV has become one of the most practical tax strategies for Australian employees. Done correctly, it reduces taxable income, eliminates FBT on the vehicle benefit, and makes an EV genuinely more affordable than the sticker price suggests. There are conditions, vehicle eligibility rules, and reporting requirements worth understanding before you commit.
How Does the EV FBT Exemption Work?
Normally, when an employer provides an employee with a car for personal use, the benefit is subject to Fringe Benefits Tax. The employer pays FBT, and the cost is typically passed back through the salary sacrifice arrangement. For most vehicles, FBT significantly erodes the benefit of salary packaging.
The Electric Car Discount Act, passed in December 2022, created an exemption from FBT for eligible low-emission vehicles. For qualifying vehicles, the FBT liability is zero. The full pre-tax salary contribution goes toward the car without FBT eating into the saving. A registered tax accountant can confirm whether your chosen vehicle and arrangement qualify before you sign anything.
Which Electric Vehicles Qualify for the FBT Exemption?
Qualifying Vehicle Types
- Battery electric vehicles (BEVs) — fully electric, zero tailpipe emissions
- Hydrogen fuel cell electric vehicles — eligible but currently rare in Australia
- Plug-in hybrid electric vehicles (PHEVs) — no longer eligible from 1 April 2025
If you entered into a PHEV arrangement before 1 April 2025, transitional rules may apply confirm with your accountant or check the ATO’s current guidance at ato.gov.au.
The Car Value Threshold
To qualify, the vehicle’s GST-inclusive purchase price must be below the luxury car tax threshold for fuel-efficient vehicles approximately $89,332 for 2024-25. This threshold is indexed annually verify the current figure at ato.gov.au before selecting a vehicle.
This excludes many premium EV models. Popular vehicles that have typically sat within the threshold include the Tesla Model 3, Tesla Model Y (base variants), BYD Atto 3, Kia EV6, and Hyundai IONIQ 6 though you should verify the specific variant and configuration against the current threshold before proceeding.
How Does a Novated Lease Work for an EV?
A novated lease is a three-way agreement between you (the employee), your employer, and a financier. Your employer takes on the lease obligation and deducts the payments from your pre-tax salary. Because the car is provided through your employer as part of your remuneration, it is treated as a fringe benefit which, for a qualifying EV, is FBT-exempt.
Under a novated lease, the salary sacrifice typically covers not just the lease repayment but also the running costs: registration, insurance, maintenance, tyres, and electricity for charging. All of these costs can be bundled into the pre-tax deduction.
A Worked Dollar Example
An employee on $120,000 taxable income salary sacrifices $15,000 per year for a qualifying EV covering lease and running costs. Their taxable income drops to $105,000. At a marginal rate of 34.5% (32.5% + 2% Medicare), the income tax saving is approximately $5,175 per year. No FBT applies. The net pre-tax cost is $15,000 equivalent to roughly $22,900 in after-tax dollars if paid from take-home pay.
Actual savings vary based on your marginal tax rate, the vehicle’s value, lease term, and running costs included. Run your specific numbers with a tax consultant before committing.
What Is the Reportable Fringe Benefit Amount and Why Does It Matter?
Even though the EV is FBT-exempt and you pay no FBT, the taxable value of the vehicle benefit must still be reported on your income statement as a Reportable Fringe Benefit Amount (RFBA). This is the part that catches most people off guard.
Reportable fringe benefits are not directly taxed as income — but they are counted in the income tests for:
- Family Tax Benefit Parts A and B
- Child Care Subsidy
- Medicare Levy Surcharge
- HECS-HELP repayment calculation
- Private health insurance rebate
- Seniors and pensioners tax offset
For employees receiving government family benefits or managing HECS repayments, the RFBA from a large EV salary sacrifice arrangement can reduce entitlements even though it is not directly taxed. This is why understanding your full tax position before the financial year ends matters not just the income tax saving in isolation.
What Running Costs Can Be Included in the Salary Sacrifice?
- Electricity for home and public charging
- Vehicle registration fees
- Comprehensive insurance premiums
- Tyres and scheduled maintenance
- Road emergency services membership- for example, RACV
Your novated lease provider should handle the administration of these costs. It is worth confirming that what is being claimed through the arrangement matches what is actually being incurred. Overclaiming running costs that are not genuinely connected to the vehicle is an area the ATO monitors.
What Are the Employer Obligations Under the EV FBT Exemption?
Employers who provide vehicles or facilitate novated leases under the FBT exemption still have administrative obligations. For business owners managing their own payroll, ETP and FBT obligations sit alongside broader company tax compliance requirements that must be handled correctly:
- Report the exempt vehicle benefit as a Reportable Fringe Benefit Amount on each employee’s income statement
- Maintain records confirming the vehicle qualifies — including purchase price, make, model, and date first held
- Process the salary sacrifice correctly through payroll so the pre-tax deduction is applied before income tax withholding
- Lodge FBT returns if other non-exempt fringe benefits are also provided during the year
For employers who have not yet offered EV salary sacrificing, the administrative setup is modest — particularly when using a novated lease provider. If you need support with your bookkeeping and payroll compliance as part of this arrangement, RPS Accountants can assist.
Frequently Asked Questions
Does the FBT exemption apply to all electric cars?
No. The exemption applies to eligible zero-emission vehicles battery EVs and hydrogen fuel cell vehicles with a purchase price below the luxury car tax threshold for fuel-efficient vehicles. From 1 April 2025, PHEVs are no longer eligible. The car must also be provided through an employer-arranged novated lease or direct vehicle provision, not purchased privately.
How much can I save with EV salary sacrificing?
Savings depend on your marginal tax rate, the vehicle’s cost, and the running costs included. A general rule: the higher your taxable income, the more compelling the EV salary sacrifice becomes. These are exactly the questions to raise with your accountant before tax season so you can model your specific numbers using actual income, chosen vehicle, and lease term.
Can I salary sacrifice an EV if I am self-employed?
Not through a standard salary sacrifice arrangement, which requires an employer-employee relationship. Sole traders cannot salary sacrifice. If you operate through a company and are an employee of that company, the company can provide you with a vehicle as a fringe benefit — and the FBT exemption may apply. The arrangement must be structured and documented correctly. A tax professional near you can confirm whether your business structure qualifies before you proceed.
What happens to the novated lease if I change jobs?
When you leave your employer, the novated lease typically reverts to a standard personal lease in your name. You become responsible for the repayments directly. Some employers will help facilitate a transfer to your new employer, but this requires cooperation from the new employer. Understand the exit provisions of your lease before signing particularly for lease terms of four or five years.
Where can I get EV salary sacrifice advice in Melbourne’s north?
RPS Accountants, based in Epping, works with employees and employers across Melbourne’s northern suburbs on salary packaging strategies, FBT compliance, and EV tax planning. If you are considering an EV salary sacrifice arrangement, visit our taxation services or contact our team directly.
Ready to Work Out Your EV Salary Sacrifice Saving?
RPS Accountants works with employees and employers across Melbourne’s northern suburbs on salary packaging strategies, FBT compliance, and EV tax planning. If you want to understand the after-tax numbers before committing, call 1300 110 120 or book at rpsaccountants.com.au.
