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People reading this page usually work these out too.
See the pre-tax and post-tax deductions a novated lease puts on your payslip, the FBT (or the electric car exemption), what it does to your take-home pay, and how the total compares with buying the same car from after-tax income. FBT rates and the 2026-27 luxury car tax thresholds are read from the ATO pages listed at the bottom, verified 28 August 2026.
An FBT-exempt electric car is still a reportable fringe benefit. The notional taxable value of $12,000 is grossed up at 1.8868 and shown on your income statement. It is never taxed — but it is added to your income for the HECS-HELP, Medicare levy surcharge and Division 293 tests.
Neither column includes lease interest — this site does not model finance charges. Ask your provider for the amount financed and the total of the payments, and add the difference to the lease column.
A novated lease should show as two deductions, not one. The pre-tax deduction comes off your gross pay before PAYG withholding, so your taxable income and your tax both fall. The post-tax deduction — the employee contribution — comes off after tax and does not reduce your taxable income at all; its job is to cancel the FBT.
| Payslip line | What it should equal | Your figure |
|---|---|---|
| Pre-tax deduction (salary sacrifice) | Lease and running-cost budget | $13,624 |
| Post-tax deduction (employee contribution) | Nil under this method | $0 |
| Taxable gross (year to date) | Salary less the pre-tax deduction | $86,376 |
| Super | Unchanged — calculated on pre-sacrifice salary | no change |
| Reportable fringe benefits (income statement, not payslip) | Taxable value grossed up at 1.8868 | $22,641 |
If the super line dropped when the lease started, ask payroll which figure they are using. Compare the rest of the payslip against the take-home pay calculator, or read the whole slip line by line in the payslip generator.
A battery electric or hydrogen fuel cell car is exempt from FBT when it was first held and used on or after 1 July 2022, it is a car under one tonne with fewer than nine seats, and luxury car tax has never been payable on it. That last condition is the one that bites: the GST-inclusive value has to be at or under the LCT threshold for fuel-efficient vehicles at the first retail sale and at every later sale.
| Financial year | Fuel-efficient vehicles | Other vehicles |
|---|---|---|
| 2026-27 | $91,661 | $80,809 |
| 2025-26 | $91,387 | $80,567 |
From 1 July 2025 a fuel-efficient car means combined fuel consumption of no more than 3.5 litres per 100km, down from 7 litres. A battery electric car clears that on any reading; the threshold that matters to it is the dollar one. The government is due to review the exemption by mid-2027.
From 1 April 2025 a plug-in hybrid is not a zero or low emissions vehicle for FBT, so a PHEV novated lease entered into now is fully subject to FBT — on a $60,000 car that is $12,000 of taxable value and $11,732 of FBT for a full FBT year, before any employee contribution.
A PHEV keeps the exemption only where both of these are true: it was used, or available for use, before that date and that use was exempt; and there is a financially binding commitment to keep providing it. The ATO says plainly it has no discretion to extend the date, including where delivery was delayed. The exemption then ends the moment the commitment changes — an optional extension being taken up, a break in the novation, a change to the lease payments or the residual value, or a change of employer. Tick the box in the calculator only if that describes your arrangement.
Under the statutory formula the taxable value is 20% of the base value, apportioned over the days the car is available for private use, less any employee contribution. FBT is 47% of that value grossed up at 2.0802 — so a dollar of taxable value costs $0.98.
That is why ECM works. A dollar paid from post-tax salary removes a dollar of taxable value, and with it $0.98 of FBT that would otherwise have come out of your pre-tax budget. The methods break even at a marginal rate of 49.4%, which is above the 47% top rate including the Medicare levy — so in 2026-27, for a resident employee, ECM is the cheaper method at every income.
| On your inputs | Employee contribution method | Statutory formula, FBT paid |
|---|---|---|
| Pre-tax deduction | $13,624 | $13,624 |
| Post-tax deduction | $0 | $0 |
| FBT payable | $0 | $0 |
| Reportable fringe benefits | $22,641 | $22,641 |
| Take-home pay | $68,215 | $68,215 |
This car is FBT-exempt, so both columns are the same — there is no FBT for a contribution to offset.
This is the part most novated lease calculators leave out. A car fringe benefit with a taxable value over $2,000 in an FBT year is reported on your income statement as a reportable fringe benefits amount, grossed up at the lower rate of 1.8868. You are not taxed on it. But it is added to your income for the HECS-HELP repayment test, the Medicare levy surcharge, the private health insurance rebate, Division 293 tax and family assistance payments.
An FBT-exempt electric car is not exempt from that. The notional taxable value is still worked out and still reported — so an EV lease can cut your taxable income and raise your compulsory study loan repayment at the same time. A full employee contribution is the one thing that removes it: it takes the taxable value to nil, so there is nothing left to report. The repayment threshold is $69,528 for 2026-27; the HECS-HELP calculator shows the bands, and private health cover and the Medicare levy surcharge covers the surcharge tiers.
The FBT year runs 1 April to 31 March — it is not the income year. A lease that starts in September is only available for part of the FBT year, and the statutory formula apportions by days, so your first year's FBT is smaller than a full year's.
| Figure | 1 April 2026 to 31 March 2027 | What it is for |
|---|---|---|
| FBT rate | 47% | Applied to the grossed-up taxable value |
| Type 1 gross-up rate | 2.0802 | Where the employer can claim GST credits — the usual novated lease case |
| Type 2 gross-up rate | 1.8868 | No GST credits — and every reportable amount, whatever the type |
| Statutory percentage | 20% | Flat since 1 April 2014, regardless of kilometres |
| Reportable threshold | $2,000 | Taxable value above this is reported ($3,773 grossed up) |
| EV home charging rate | 5.47c/km | PCG 2024/2 shortcut for home-charged electricity (4.20c before this year) |
The residual — the balloon payment — is set by the ATO as a minimum percentage of the original cost. It is paid from after-tax money, which is why the comparison above counts it. A lease can be written with a higher residual, which lowers the deductions now and raises the payment at the end.
| Lease term | Minimum residual | On your $60,000 car | Capital repaid a year |
|---|---|---|---|
| 1 year | 65.63% | $39,378 | $20,622 |
| 2 years | 56.25% | $33,750 | $13,125 |
| 3 years | 46.88% | $28,128 | $10,624 |
| 4 years | 37.50% | $22,500 | $9,375 |
| 5 years | 28.13% | $16,878 | $8,624 |
ATO Taxation Determination TD 93/142, table at paragraph 3A, 8-year effective life — the column its own worked example uses for a car.
The three-way agreement, what sits in the budget, and what happens if you leave your job.
What any pre-tax deduction does to your take-home pay.
How FBT works across benefit types, not just cars.
Repayment income, the bands, and what a reported benefit adds.
Your pay after tax with and without the deduction.
The other benefits that can be packaged, and their caps.
The saving is the tax you no longer pay on the part of your salary that goes to the car, less any FBT and less the post-tax employee contribution. On $100,000 with a $60,000 electric car over five years and $5,000 a year of running costs, the pre-tax deduction is $13,624 a year and take-home pay falls $9,265 — so the tax system carries $4,359 of the $13,624. Enter your own salary and car price above; the answer moves with your marginal rate.
It depends on the car and the FBT treatment, not on your salary alone. Over five years, the $60,000 electric car above costs $63,205 out of take-home pay including the $16,878 residual, against $85,000 to buy the same car and run it from after-tax income — $21,795 better. A $45,000 petrol car on the employee contribution method comes out $5,545 ahead; the same car left on the statutory formula is $9,971 worse off than buying it. Neither side of that comparison includes lease interest.
Under the statutory formula the taxable value is (A x B x C ÷ D) − E: A is the base value (the GST-inclusive cost price, excluding registration and stamp duty), B is the statutory rate of 20%, C is the days the car was available for private use, D is the days in the FBT year, and E is your post-tax employee contribution. FBT is then 47% of that value grossed up at 2.0802. On a $60,000 car that is $12,000 of taxable value and $11,732 of FBT for a full year.
ECM means paying part of the car's cost from post-tax salary. Every dollar of employee contribution reduces the FBT taxable value by a dollar, and a dollar of taxable value costs $0.98 in FBT — so contributing the full statutory value wipes out the FBT entirely. It pays until your marginal rate reaches 49.4%, which is above the 47% top rate including the Medicare levy, so in 2026-27 ECM is the cheaper method at every marginal rate.
A battery electric or hydrogen fuel cell car is exempt if it was first held and used on or after 1 July 2022 and luxury car tax has never been payable on it — that means a GST-inclusive value at or under the LCT fuel-efficient threshold, $91,661 for 2026-27. One dollar over and the whole exemption is gone, not just the excess. Associated running costs — registration, insurance, repairs, and electricity to charge it — are exempt too.
Only under a pre-existing arrangement. From 1 April 2025 a plug-in hybrid is no longer a zero or low emissions vehicle, so a PHEV novated lease signed today is fully subject to FBT. A PHEV keeps the exemption only where it was used, or available for use, before that date and there is a financially binding commitment to keep providing it — and the ATO has no discretion to extend the date, even for delivery delays. Any change to that commitment, including an optional extension, a change to the lease payments or residual, or a change of employer, ends the exemption from that point.
Yes, and in both directions. The pre-tax deduction lowers your taxable income, but the car also creates a reportable fringe benefits amount, and your compulsory repayment is worked out on repayment income — taxable income plus that reportable amount. On the $60,000 electric car above, the reportable amount is $22,641, which lifts repayment income to $109,017 and the repayment from $4,571 to $5,923 — $1,352 more, on a $69,528 threshold. An FBT-exempt car is not exempt from reporting.
It can. Your reportable fringe benefits amount is added to income for the Medicare levy surcharge test, so a lease can pull your surcharge income back over a tier threshold even while your taxable income falls below it. The same amount counts for Division 293 tax and the private health insurance rebate. It is never taxed itself — it only sits in the income tests.
As two lines, not one. The pre-tax (salary sacrifice) deduction comes off your gross before tax is worked out, so your taxable income and your PAYG withholding both fall. Any employee contribution appears as a separate post-tax deduction after tax. Check that the pre-tax line matches your packaging quote's lease and running-cost budget, that the post-tax line matches the FBT taxable value if you are on ECM, and that your year-to-date gross has fallen by the pre-tax amount.
No. The FBT year runs 1 April to 31 March — currently 1 April 2026 to 31 March 2027 — while the income year runs 1 July to 30 June. The statutory formula apportions by days in the FBT year, so a lease starting mid-year produces a part-year taxable value, and the reportable amount for an FBT year appears on your income statement for the income year ending on the following 30 June.
It should not. Under Payday Super, qualifying earnings include salary sacrificed amounts that would otherwise be qualifying earnings, so your employer's super should still be calculated on your pre-sacrifice salary. Check your payslip: if the super line fell when the lease started, ask payroll which figure they are using.
A percentage of the original cost that you pay from after-tax money if you want to keep the car. The ATO's minimum residuals are 65.63% for a one-year lease, 46.88% for three years and 28.13% for five — so a $60,000 car on a five-year lease still has $16,878 to pay at the end. The calculator counts the residual in the total, because otherwise the comparison against buying the car is not a fair one.
Last verified: 28 August 2026. Our content is based on the latest information from official Australian government sources.
Senior Tax & Payroll Analyst
CPA, Registered Tax Agent (25787011)
James is a CPA-qualified tax professional with over 14 years of experience in Australian taxation and payroll systems. He spent six years at the Australian Taxation Office working on PAYG withholding and individual tax return processing before moving into financial publishing. He now leads the tax content at Pay Calculator Australia, translating complex ATO legislation into clear, actionable guidance.
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