Fringe Benefits Tax (FBT) is the piece of a novated lease that confuses most people — but the mechanics are straightforward once you see them. Because your employer provides the car as part of your salary package, the ATO treats it as a fringe benefit, and FBT is the tax that applies to that benefit. This guide explains how FBT is calculated on a novated lease, how the Employee Contribution Method removes it, and how the EV FBT exemption can wipe it out entirely.
Alpha390 arranges novated leases through a specialist salary-packaging partner, so your enquiry is handled by people who do this every day. This is general information, not tax advice — always confirm your position with your accountant or salary-packaging provider.
Why FBT applies to a novated lease
In a novated lease, your employer takes on the lease payments from your pre-tax salary. That car becomes a fringe benefit, and the employer is liable for FBT on it. In practice the cost is passed to you through your salary package — which is exactly why understanding FBT matters to your take-home pay.
The two ways FBT is calculated
| Method | How it works | Notes |
|---|---|---|
| Statutory formula method | FBT is based on a flat 20% of the car’s value (the statutory fraction), regardless of how much you drive. | Simple and most common; the taxable value is 20% of the base value of the car. |
| Operating cost method | FBT is based on the actual running costs and the business-vs-private use percentage (needs a logbook). | Can suit very high or very low private-use cases. |
The Employee Contribution Method (ECM) — how most people remove FBT
Under ECM, you make part of your lease payments from your post-tax salary. Those post-tax contributions reduce the taxable value of the benefit — and when your post-tax contribution equals the FBT taxable value, the FBT liability is reduced to nil. In plain terms: a slice of the payment moves to after-tax dollars, and in exchange the FBT bill disappears. Your package is usually structured as a blend of pre-tax and post-tax so you still come out ahead versus buying with after-tax income.
The EV FBT exemption
Eligible battery-electric and plug-in hybrid vehicles under the luxury car tax threshold for fuel-efficient vehicles can be exempt from FBT when provided through a novated lease. That removes the need for post-tax ECM contributions altogether, which is why EV novated leases have become so popular. Eligibility rules and thresholds change — confirm the current position before you commit. (See our EV novated lease guide.)
Worked example (illustrative)
On a $50,000 petrol car under the statutory method, the FBT taxable value is 20% = $10,000. Using ECM, you contribute roughly that amount from post-tax salary across the year, which reduces the FBT to nil — the rest of the lease (finance + running costs) comes from pre-tax salary, lowering your taxable income. On an eligible EV, the exemption means there’s generally no FBT and no post-tax contribution required at all. Figures are illustrative only — your provider will model your exact package.
Get your novated lease structured properly
The right method and pre/post-tax split depend on the car, your salary and your employer’s arrangement. Enquire with Alpha390 and our salary-packaging partner will model the FBT, ECM split and take-home impact for your situation.
Related reading
How does a novated lease work? · Novated lease calculator · Novated lease pros and cons · Novated lease vs car loan · Novated lease vs salary sacrifice · Electric car novated lease · explore car finance.
Novated lease FBT — FAQs
Do I actually pay FBT on a novated lease?
Usually not directly. Most packages use the Employee Contribution Method, where post-tax contributions reduce the FBT to nil. Eligible EVs can be FBT-exempt, removing it entirely.
What is the Employee Contribution Method?
ECM is where you pay part of the lease from post-tax salary. Those contributions cut the taxable value of the car benefit, offsetting the FBT liability — often to zero — while the rest of the package stays pre-tax.
How is FBT calculated on a novated lease?
Most leases use the statutory method: the taxable value is a flat 20% of the car’s base value, regardless of kilometres. The operating cost (logbook) method is an alternative based on actual running costs and private-use percentage.
Are electric cars exempt from FBT?
Eligible battery-electric and plug-in hybrid vehicles under the fuel-efficient luxury car tax threshold can be FBT-exempt through a novated lease. Thresholds and eligibility change — confirm the current rules.
Is this tax advice?
No. This is general information only. Your FBT position depends on your salary, employer and vehicle — confirm it with your accountant or salary-packaging provider before committing.
Written and reviewed by the Finance Director at Alpha390 Finance.
This article is general information only and does not constitute credit, financial or tax advice. Novated leasing is facilitated through a specialist partner. Alpha390 Finance operates under Australian Credit Licence 506065 (Five Tees Pty Ltd). Lending and leasing are subject to approval, criteria, terms, conditions and fees.
