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Fringe Benefits Tax
Explained
A clear guide to how FBT works with novated leasing — and why most employees pay none of it.
Understanding Fringe Benefits Tax (FBT)
When your employer provides a car through a novated lease, Fringe Benefits Tax may apply. Novated leases are structured using one or both of these methods to reduce or eliminate that liability.
Statutory Formula Method
The taxable value of the car is calculated as 20% of the vehicle's original cost. This is the standard ATO method and is used as the starting point for working out any FBT owing.
Employee Contribution Method (ECM)
A portion of your lease costs is paid from your after-tax salary. This directly offsets the FBT liability — in most cases reducing it to zero — while the rest of your costs still come from pre-tax salary.
Our calculator automatically structures the split between pre-tax and post-tax deductions to minimise your FBT and maximise your savings.
Electric Vehicles: Zero FBT
Since July 2022, eligible electric vehicles provided through a novated lease have been exempt from Fringe Benefits Tax. With no FBT to offset, your entire lease payment comes from pre-tax salary. Combined with GST savings, the total benefit can be tens of thousands of dollars over the lease term.
Eligibility checklist
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Must be a fully electric vehicle (battery electric only — no petrol engine)
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Must be priced below the Luxury Car Tax threshold for fuel-efficient vehicles ($91,387 for 2024–25)
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Must have been first held and used on or after 1 July 2022
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