If you have been putting off an EV novated lease "for later," later just got a deadline. The 2026-27 Federal Budget confirmed the full Fringe Benefits Tax exemption on electric vehicles is being phased out in stages, starting 1 April 2027. It is not disappearing overnight, and if you get in before the cutoffs you can lock in years of full tax-free benefit. But the settings that made EV novated leases such an obvious win are genuinely narrowing, and the timeline matters more than most people realise.
Here's what's actually changing, what it means in dollar terms, and how a novated lease stacks up against a straight car loan once the exemption starts shrinking.
What's Actually Changing (and When)
The government is not scrapping the EV FBT exemption in one hit. It is a three-phase wind-back, and where you sit depends entirely on when your lease starts.
| Phase | Timing | What applies |
|---|---|---|
| Phase 1 | Now until 31 March 2027 | Full 100% FBT exemption for eligible EVs up to the fuel-efficient luxury car tax threshold ($91,661 for 2026-27) |
| Phase 2 | 1 April 2027 to 1 April 2029 | EVs $75,000 or under keep the full 100% exemption. EVs priced between $75,000 and the LCT threshold get a 25% discount only |
| Phase 3 | From 1 April 2029 | All new EV arrangements move to a 25% FBT discount, regardless of price, up to the LCT threshold |
The important detail most articles skip: this only applies to new arrangements. If you're already in a novated lease, or you enter one before the relevant cutoff, your terms are grandfathered for the life of that lease. In practical terms, that means an EV under $75,000 novated before 1 April 2029 keeps its full exemption the whole way through, even if you're still driving it in 2032. The ATO's own guidance on the changes confirms these transitional arrangements, so it is worth a look if you want the fine print for your own situation.
The Worked Example: What This Actually Costs You
Numbers make this real faster than percentages do. Say you're on a $90,000 salary and you novate a $55,000 electric vehicle over five years.
Under the current full exemption, you pay no FBT on that car at all, in this scenario often saving thousands a year compared with a car loan once tax and running costs are factored in. Under the 25% discount that eventually applies to everyone (Phase 3), 75% of the taxable value comes back into the FBT calculation. You still keep a real, meaningful saving over an ICE vehicle or a straight car loan, just not the full ride.
The practical upshot: for anyone considering a novated lease on a car priced under $75,000, getting the paperwork done before 1 April 2029 locks in the bigger saving for the entire lease term, not just the first year or two.
Novated Lease vs Car Loan: Does It Still Stack Up?
This is the question we get asked constantly, and the answer depends on your income, your car choice, and your employer's salary packaging setup. We go through it in more detail in our full novated lease vs car loan comparison, but here is the short version.
| Novated Lease | Car Loan | |
|---|---|---|
| Paid from | Pre-tax salary (reduces taxable income) | After-tax income |
| Running costs | Can be bundled in (fuel, servicing, insurance, rego) | Paid separately, out of pocket |
| Ownership | Financier owns it during the lease, residual payment at the end | You own it from day one |
| GST | Often saved on the purchase price | GST included in the price you finance |
| Best suited to | Employees with salary packaging access, especially on an eligible EV | Anyone without employer salary packaging, or buying an older or used vehicle |
| FBT exposure | Depends on the phase and vehicle price (see above) | Not applicable |
On a fuel-efficient EV under $75,000, a novated lease is still likely to come out ahead of a car loan for most middle to higher income earners, at least until 2029. Above that price point, or after the exemption narrows further, the gap closes and it is worth running both scenarios side by side rather than assuming the lease automatically wins. If your employer does not offer salary packaging, or you are buying a used petrol car, a standard car loan is usually the simpler and cheaper path anyway.
Should You Lock In an EV Novated Lease Before April 2027?
If you're already planning to buy an EV under $75,000 in the next year or two, there's a genuine financial case for bringing that decision forward rather than waiting. Entering the lease before 1 April 2027 doesn't just protect you from Phase 2, it can carry the full exemption through to the end of your lease term, well past 2029, depending on how your provider structures the grandfathering.
That said, this isn't a reason to rush into a lease on a car you're not sure about. A novated lease is a multi-year commitment, and the tax saving only matters if the vehicle and the repayment structure genuinely suit your situation. Our brokers can run the comparison against a straight car loan for your actual salary and car choice, not a generic online calculator, so you can see the real numbers before you commit either way.
FAQs
Does my current novated lease get cancelled or changed? No. Existing leases are grandfathered under the rules that applied when you entered them. The changes only affect new arrangements from the relevant start dates.
Do plug-in hybrids qualify for this exemption? No. As the ATO explains, PHEVs lost eligibility for the electric car exemption from 1 April 2025, except where a binding commitment was already in place. Only fully electric and hydrogen fuel cell vehicles remain eligible now.
Is it still worth novating an EV after 2029? Often yes, just not to the same degree. A 25% FBT discount is still a real saving over a car loan on an equivalent ICE vehicle, particularly once running costs are bundled in. It is worth comparing your specific numbers rather than assuming either option automatically wins.
Key Takeaways
- The full FBT exemption on EVs continues in full until 31 March 2027, no immediate change.
- From 1 April 2027, only EVs priced $75,000 or under keep the full exemption. Above that, it is a 25% discount.
- From 1 April 2029, every new EV arrangement moves to the 25% discount, regardless of price under the LCT threshold.
- Leases entered before each cutoff are grandfathered for their full term.
- A novated lease on an eligible EV still tends to beat a car loan on comparison rate and after-tax cost, at least while the full exemption remains available.
If you're weighing up a novated lease against a car loan for your next vehicle, or you want to know exactly how the FBT changes affect your specific salary and car choice, we'll compare 30+ lenders and run the real numbers for you. For business or fleet vehicles, our commercial vehicle finance team can talk you through the equivalent considerations for company-owned EVs. Call 1800 079 147 or get in touch online to get started.
Sources referenced: Australian Taxation Office, Electric car discount, more sustainable fringe benefits tax treatment of electric cars and FBT on plug-in hybrid electric vehicles.
This article provides general information only. It does not constitute financial advice. Please consider your personal circumstances before making any financial decisions. Loans123 holds Australian Credit Licence 512846.
Written by
Loans123 Team
The Loans123 team has over 10 years of experience helping Australians find the right finance solutions. We compare 30+ lenders to get you the best deal.
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