Quick answer: A novated lease is a three-way arrangement between you, your employer and a lease provider, where your car repayments and running costs come out of your salary — partly before tax. For eligible electric vehicles under the price cap, the federal EV FBT exemption removes fringe benefits tax on the car, which can make an EV novated lease noticeably cheaper than paying for the same car with a normal loan. Alpha390 helps you set one up through our novated-lease partner.
How a novated lease works
Your employer agrees to deduct the lease and running costs from your pay and send them to the lease provider (this is the “novation”). Because part of the deduction comes out of your pre-tax salary, your taxable income drops. The lease usually bundles the car plus running costs — rego, insurance, servicing, tyres and often charging — into one regular payment.
The EV FBT exemption — the bit that changes the maths
Normally, packaging a car through salary creates a fringe benefits tax liability, which is often offset by a post-tax contribution. For eligible electric and plug-in hybrid vehicles first held and used on or after 1 July 2022, priced under the luxury car tax threshold for fuel-efficient vehicles, the car is exempt from FBT. Removing that FBT is what lets more of your salary packaging happen pre-tax — the reason an EV novated lease can beat a comparable car loan on total cost for many people. (Note: the exemption for plug-in hybrids has a legislated end date, so check current rules for the vehicle you’re considering.)
EV novated lease vs a car loan
With a loan you own the car and repay from after-tax income. With a novated lease you package the car from pre-tax salary and hand it back or pay a residual at the end. For an eligible EV, the FBT exemption plus bundled running costs often tips the comparison toward the lease — but it depends on your salary, the car price and how long you keep it. We break the two down side by side in novated lease vs car loan.
What to check before you commit
Your employer has to be on board
A novated lease only works if your employer will administer the salary deductions. Most medium and large employers do; some small businesses don’t — worth confirming first.
The residual (balloon) at the end
Novated leases carry an ATO-set residual value payable at the end of the term. You can pay it out, refinance, or start a new lease on a new car.
The price cap
The FBT exemption only applies under the fuel-efficient luxury car tax threshold, so premium EVs above the cap won’t qualify.
How Alpha390 helps
Alpha390 facilitates novated leases through our specialist novated-lease partner — we help you scope the numbers and connect you to get it set up, whether it’s an EV or a petrol car. Prefer to buy outright or through the business? We also arrange EV car loans and business car finance.
EV novated lease FAQs
What is the EV FBT exemption?
It removes fringe benefits tax on eligible electric and plug-in hybrid vehicles priced under the fuel-efficient luxury car tax threshold, first held and used from 1 July 2022. That lets more of a novated lease be packaged pre-tax.
Is an EV novated lease cheaper than a car loan?
For an eligible EV it often works out cheaper on total cost because of the FBT exemption and bundled pre-tax running costs, but it depends on your salary, the car price and term. Compare both before deciding.
Do I need my employer’s agreement?
Yes. Your employer administers the salary deductions, so a novated lease only works if they’ll support it.
What happens at the end of the lease?
You pay the ATO-set residual value — by paying it out, refinancing, or rolling into a new lease on a new car.
Does Alpha390 provide the novated lease directly?
We facilitate it through our novated-lease partner and help you scope the numbers; the lease itself is provided by the partner.
This article is general information only and does not constitute credit, financial or tax advice. Alpha390 operates under Australian Credit Licence 506065 (Five Tees Pty Ltd). Novated leasing is facilitated via a third-party partner. FBT and tax treatment depend on your circumstances and current legislation — consider whether this is appropriate for you and confirm with your employer and a qualified tax adviser. Written and reviewed by the Finance Director at Alpha390.
