Novated leasing offers a significant financial advantage over traditional car loans or withdrawing from your home loan by providing substantial savings. This cost-effective option allows you to manage your vehicle expenses more efficiently while reducing your overall financial burden. Here’s how companies can leverage these EV tax incentives and maximise the benefits of novated leases for their employees.
Companies and employees are looking for ways to benefit from sustainable and financial incentives in today’s workplace. For many people, the cost of buying an electric vehicle (EV) has been a barrier in the past. To encourage this sustainable practice, the government has proposed a tax incentive through a novated car lease, which many businesses are exploring as a viable option for their fleet and employee benefits.
What is a novated lease?
A novated lease is a three-way agreement between an employee, their employer, and a leasing company. The employee chooses a vehicle, and the employer agrees to make the lease payments from the employee’s pre-tax salary, reducing their taxable income.
A lease package could either be non-maintained or fully maintained:
- A fully maintained novated lease bundles the car’s purchase price, running costs, and insurance into one payment, all deducted from your pre-tax salary. This streamlined approach is appealing to many, as it offers the convenience of a single, consolidated payment that covers all vehicle-related expenses.
- Non-maintained lease only includes the car’s purchase price in the lease payments, leaving the employee responsible for covering all other costs, such as fuel, maintenance, and insurance.
A novated lease can also help avoid paying thousands of dollars in goods and services tax (GST) on the car’s purchase price and ongoing running costs. Some lease providers can help save even more by securing bulk discounts on the vehicle’s purchase price, further reducing overall expenses. This arrangement provides significant financial benefits, as employees can save on income tax while businesses enhance their employee compensation packages without increasing direct salary costs.
EV Tax Incentives
Leased vehicles, typically driven for personal use, attract fringe benefits tax (FBT). That is no longer the case as Novated leases for EVs, valued up to the luxury car tax threshold ($91,387 for FY 24/25), are exempt from FBT. This eliminates the need to provide company cars, reducing the potential for FBT liability. This attractive leasing arrangement allows employees to make car repayments from pre-tax salary under a ‘salary sacrifice.’
With the employers paying the lease from the employee’s pre-tax income, it effectively lowers the taxable earnings, resulting in a reduced tax bill. Each payment reduces the taxable income, essentially giving a tax break every time you contribute toward the vehicle. This not only means you pay less tax overall but also leaves you with more disposable income at the end of the month.
Eligibility
You do not pay FBT if you provide private use of an EV or PHEV that meets all the following conditions:
- The car is a zero or low-emissions vehicle,
- The first time the car is both held and used is on or after 1 July 2022
- The vehicle is used by a current employee or their associates (such as family members)
- Luxury car tax (LCT) has never been payable upon importation or sale of the car.
EVs qualify as zero or low-emissions vehicles if they meet both of the following criteria:
It is a:
- Battery electric vehicle OR
- Hydrogen fuel cell electric vehicle OR
- Plug-in hybrid electric vehicle (PHVE) (excluding hybrid vehicles that are solely powered by liquid petrol) and;
- It is designed to transport a load of less than 1 tonne and accommodate fewer than nine passengers, including the driver.
Note that from 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low-emissions vehicle under FBT law. Electric motorcycles and scooters are not considered vehicles for FBT purposes and do not qualify for the exemption.
Our Services
At OpenLegal, we are dedicated to helping businesses and employees navigate the complexities of novated car leases and the associated EV tax incentives. Our expert team provides comprehensive legal and advisory services tailored to your specific needs, ensuring that you maximise the financial and environmental benefits of adopting electric vehicles. Contact us on enquiries@openlegal.com.au or 1300 337 997, to discover how we can help you leverage novated leases and EV incentives for financial and environmental gains.
By Amirali Shojaei, Intern at OpenLegal
