Learn how salary packaging an EV could save you thousands
Looking to drive a brand-new electric vehicle and reduce the tax you pay at the same time? Salary packaging an EV could be your smartest move yet. It’s an arrangement with your employer that allows you to pay for certain expenses, like a new car, using pre-tax income. This could lower your taxable income, meaning you could pay less tax.
Thanks to generous government incentives, salary packaging an eligible EV could save employees thousands of dollars each year.
This guide will walk you through everything you need to know about salary packaging an electric vehicle (EV) with SmartTM. We’ll cover what salary packaging is, the benefits of choosing an EV and how the process works. By the end, you’ll have a clear understanding of how you can potentially drive away in a new EV while saving thousands.
Salary packaging, also known as salary sacrificing, is an ATO approved arrangement where all or part of your pre-tax income is used to pay for certain everyday expenses. This could reduce your income tax, helping you keep more of your pay.
Salary packaging a car is known as novated leasing. It’s a three-way agreement between an employee, their employer and a financier, with a salary packaging company like Smart doing the legwork for you.
A novated lease can be set up for either a petrol-powered car or an electric vehicle (EV). However, there is the possibility of even greater tax savings with an EV. Sound interesting? Read on for our guide to salary packaging electric vehicles.
An EV is any vehicle that is fully or partially powered by electricity from batteries. They differ to petrol-powered cars (also known as internal combustion engine vehicles or ICE), who rely on petrol or diesel to power the car.
There are three main types of EVs:
These vehicles run solely on battery power and are fully-electric. Drivers can charge these cars at home using an AC charger, or could use a more powerful charger at a public charging station.
Examples of a BEV include the Tesla Model Y, BYD Sealion 7 and Geely EX5.
These are the types of EV’s that can be eligible for the Federal Government’s Electric Car Discount (more on this later).
Plug-in hybrid cars have both an internal combustion engine and a battery-powered electric motor. This allows for the use of the electric motor for shorter trips, then switching to petrol for longer trips.
Like a BEV, the battery must be plugged in to charge.
Examples of a PHEV include the Mitsubishi Outlander PHEV, Mazda CX-60 PHEV and the BYD Shark.
PHEVs have been ineligible for the Electric Car Discount since 1 April 2025.
Hybrid cars run on both an ICE and electric motor that uses energy stored in the battery. There is no ability to use only the electric motor, and no ability to charge the battery by any other source except by the ICE.
Hybrid cars have never been eligible for the Electric Car Discount.
Finally, there is another type of electric vehicle called a Hydrogen Fuel Cell electric vehicle (FCEVs). These cars generate electricity through a chemical reaction between hydrogen and oxygen. There are limited FCEVs for sale in Australia.
There are several advantages to an EV over traditional petrol-powered cars. These include:
A novated lease for an EV works just the same as a lease on a petrol-powered car, with the possibility of even more tax savings.
Under the Australian Government’s Electric Car Discount policy, eligible EVs are exempt from Fringe Benefits Tax (FBT). FBT is a tax that employers normally have to pay on benefits provided to their employees, like a car on a novated lease. The cost of this tax is usually passed on to the employee.
With the FBT exemption, the entire cost of the novated lease, including all running costs, can be deducted from your pre-tax salary when leasing an eligible EV. This could reduce your taxable income, potentially leading to significant tax savings that aren’t available for petrol or diesel cars.
What counts as an eligible EV? Any fully electric vehicle purchased through a novated lease up to the Luxury Car Tax limit ($91,387 in FY 2025-26)*.
When you purchase a car through a novated lease, the finance company buys the car and claims the Goods and Services Tax (GST) back from the government. This saving is passed on to you, meaning you could save up to 10% on the purchase price of the vehicle^.
A novated lease bundles car-related expenses into one simple, regular payment. This includes:
These costs are also paid from your pre-tax salary (for FBT-exempt EVs), giving you further tax savings and making it much easier to budget for your car expenses.
To take advantage of these benefits, both your employer and the vehicle need to meet certain criteria.
First, your employer must offer salary packaging and novated leasing as part of their employee benefits program.
This is common in sectors like healthcare, government and not-for-profit organisations, but many private companies offer it as well. If you’re not sure, it’s best to check with your payroll department.
For an EV to be eligible for the FBT exemption, it must meet the criteria set by the ATO:
The process of setting up a novated lease for an EV is straightforward with the help of a salary packaging provider like Smart™.
Here are the typical steps:
To get the most out of your EV novated lease, consider the following tips:
One of the most exciting parts of switching to an EV through novated leasing is saying goodbye to petrol stations. With an EV, you have a growing number of options on how to charge your car, from home charging to using fast public chargers.
Many EV owners will use a combination of charging methods to top up their EV. These include:
One of the lesser-known perks of leasing an electric vehicle (EV) is the potential to claim tax benefits on your charging costs. But, you’ll need to choose your method carefully.
Under the ATO’s Practical Compliance Guideline PCG 2024/2, individuals and employers can claim charging expenses in one of two ways during each Fringe Benefits Tax (FBT) year (which runs from 1 April to 31 March):
It’s important to note that you can only use one method per vehicle per FBT year, so choosing the right one depends on your charging habits and record-keeping setup. For those using a novated lease, this decision could influence your overall tax savings and reporting obligations.
While the benefits of salary packaging an EV are compelling, there are a few things to keep in mind before proceeding.
A novated lease is tied to your employment. If you leave your job, you'll need to make arrangements for the lease.
You can generally transfer it to a new employer, if they offer novated leasing. We work with thousands of employers across Australia and can help facilitate a smooth transition to your new workplace. If your new employer doesn’t offer novated leasing, we can help you explore options like converting to a consumer loan to maintain your car payments.
At the end of the lease term, there is a final residual payment (or balloon payment) that you’ll be required to pay. The residual is set following guidelines from the ATO. The residual value is included in your novated leasing quote, so you will know upfront what this cost will be at the end of your lease.
When you lease an EV it is important to understand how it affects your broader financial obligations. The value of an EV lease is considered a reportable fringe benefit, which isn’t taxed directly but is added to your adjusted taxable income (ATI) by the ATO.
The good news for student debt? Whilst your HECS/HELP repayments may rise, the overall tax savings from salary packaging may outweigh the additional repayment costs (which all go towards paying down your student debt). If you do have a HECS/HELP debt and have an EV on a novated lease, you should speak to your tax accountant or financial adviser about your financial position and objectives.
Your ATI can also affect your eligibility for government benefits like Family Tax Benefit, Child Care Subsidy and Centrelink payments, and it plays a role in calculating child support obligations. Whether you’re receiving or paying child support, the grossed-up fringe benefit amount is included in your income assessment, which could change the amount owed or received.
Understanding these impacts upfront can help you make informed decisions and avoid surprises at tax time, and as always we suggest that you speak with your tax accountant or financial adviser.
Salary packaging an electric vehicle offers a powerful way to reduce your running costs, minimise your tax bill, and make a positive impact on the environment. Thanks to the government's FBT exemption, the financial case for switching to an EV has never been stronger. By bundling all your car expenses into a single pre-tax payment, you could simplify your finances and potentially unlock thousands of dollars in savings each year.
If you’re employed by an organisation that offers novated leasing and are in the market for a new car, exploring an EV lease could be a smart financial move. It puts you in control, simplifies your expenses, and makes driving a brand-new electric car more affordable than you might think.
Taking the first step towards smarter car ownership is easier than you might think.
Whether you're ready to apply or just want to learn more, our team is here to help guide you through the process.
This is general information only. Before entering into any salary packaging or novated leasing arrangement, you should consider your objectives, financial situation and needs, and seek appropriate legal, financial or other professional advice based upon your own particular circumstances. The availability of benefits is determined by your employer. Conditions and fees apply. Smartsalary Pty Ltd, ABN 24 096 796 100, a Smart™ company
*See the Australian Taxation Office website for full eligibility criteria
^GST is not payable on the purchase price of a vehicle financed through a novated lease (GST savings are calculated on the FBT base value of the vehicle, up to the claimable limit [$6,334 in FY 2025-26] unless exempt).
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