Q&A: Everything you need to know about EVs and novated leasing

Xavier Peña is head of partnerships for Ohme Australia. Here he explains why novated leasing, EVs and you are a great three-way partnership and the savings you can make:

What is a novated lease and how does it work?

A novated lease is a type of salary sacrifice where your company pays for your car lease to a finance company, and then takes the amount of the payment out of your wages.

The lease payment comes out of your gross income before you pay any tax, thus reducing your taxable income. This can be more financially beneficial than compared to paying the same leasing cost out of your normal post-tax salary.

What are EVs so attractive for novated leasing?

Novated leasing for EVs in Australia has become increasingly appealing since July 2022 due to the Fringe Benefits Tax (FBT) exemption.

The FBT exemption is specifically tailored for EVs and means that employers are not required to pay the 47% FBT on eligible electric cars and their associated expenses, so it represents some significant cost savings.

What are the different types of novated lease available?

There are two different types of novated lease to consider. The first is called a Non-Maintained novated lease where only the purchase price and finance costs are included in the leasing repayments. All of the rest of the running costs are paid by the driver normally.

The second is called a Fully-Maintained novated lease and this includes the purchase price and finance costs as above but also the running expenses as well. So, this means maintenance such as servicing and tires, your insurance and even the electricity used to charge your EV (calculated versus your odometer readings and reimbursement via the ATO’s 4.2c/km official rate).

The cost of the EV Charger and its installation are not considered part of the running expenses unfortunately. However, investing in a smart charger that is solar compatible, like the Ohme ePod, can save you quite a lot of money on running costs in the long run.

Are all EVs exempt from Fringe Benefits tax on a novated lease?

As long as the retail sale price of the EV is below the luxury car tax threshold for fuel-efficient cars (currently $91,387 for 2024/25), then it’s exempt. Until 1 April 2025, all Plug-In Hybrids (PHEVs) are exempt. For Battery Electric Vehicles (BEVs), the FBT Exemption will be reconsidered in July 2027 and it will depend on the adoption rate of electric mobility in Australia at that stage.

Anything else I need to be aware of?

If you leave your employer at any point during the novated lease period, then you need to remember that you are still responsible for the lease payments, unless your new employer picks up the lease.

The FBT Exemption initiative by the Federal Government has promoted the uptake of EVs, especially among companies and fleet operators. These electric vehicles will soon hit the second-hand market, making this sustainable tech more accessible to a broader population.