Novated lease FBT: what the employer actually has to do

Under a novated lease, FBT is the employer's liability, not the employee's. You work out the car's taxable value, usually as 20% of its base value, and reduce it by the employee's after-tax contributions. You lodge and pay by 21 May, and report amounts over $2,000 through Single Touch Payroll, even for FBT-exempt electric cars.

Who pays the FBT on a novated lease: you or your employee?

You do. A novated lease is a three-way agreement between you, your employee and a lease provider. You take on the lease repayments and take a matching deduction from your employee’s salary. The ATO describes it this way: although the employee privately owns the vehicle, it is treated as if it were a company vehicle.

That makes the car a fringe benefit you provide, and FBT is an employer tax. You self-assess it, lodge the return and pay it. A salary packaging provider might run the numbers for you, but the liability and the lodgment stay with your business.

What your employee controls is how big that liability gets. If they make after-tax contributions towards the car, the taxable value drops, and the ATO notes the employer’s FBT liability “can be reduced if the employee is making post-tax contributions”. A lease can be set up so those contributions bring the taxable value to nil.

The ATO runs a novated leases data-matching program covering 2018–19 to 2025–26. FBT compliance on novated cars is one of the risks it names, alongside GST credits and employees’ own car deductions.

How is the taxable value of a novated car worked out?

A novated car is valued the same way as any other car you provide. You can use either method, and you can switch from year to year. You don’t have to tell the ATO which one you used, but you must choose by the day your FBT return is due.

The 20% rate is flat. It applies to car fringe benefits provided from 1 April 2014, regardless of distance travelled. Base value is the cost price excluding registration and stamp duty, but including dealer delivery, non-business accessories, GST and any luxury car tax.

The statutory method is simpler. The operating cost method only helps when business use is genuinely high, and only if you hold the logbook to prove it.

What does a novated lease cost you if nobody contributes?

The FBT you owe is the taxable value, grossed up, multiplied by the FBT rate. The rate is 47% for every FBT year from the year ending 31 March 2023 to the year ending 31 March 2027. Use the type 1 gross-up rate of 2.0802 where you can claim a GST credit on the benefit, and the type 2 rate of 1.8868 where you can’t.

Here is a worked example for the current FBT year (1 April 2026 to 31 March 2027). It uses a petrol car with an illustrative $45,000 base value, available to the employee all year.

The left column is the bill that lands on your business when contributions are set up wrong or stop. If an employee goes on unpaid leave, changes their package or leaves mid-year, check the contributions still cover the year’s taxable value before you lodge.

Is an electric car on a novated lease really FBT-free?

Often, yes. You don’t pay FBT on the private use of an electric car that meets all four ATO conditions:

• It is a zero or low emissions vehicle: a battery electric or hydrogen fuel cell car, carrying a load under one tonne and fewer than 9 passengers.
• It was first both held and used on or after 1 July 2022.
• It is used by a current employee or their associates, such as family members.
• Luxury car tax has never been payable on its importation or sale. That means it sat below the LCT threshold for fuel-efficient vehicles in force at its first retail sale and every sale since. For 2026–27 that threshold is $91,661.

Salary packaged benefits are included in the exemption, and so is the electricity used to charge the car. A home charging station is not part of it. The ATO treats a charger as a possible property or expense payment fringe benefit instead.

The catch most guides skip is reporting. The exemption removes your FBT bill, not the paperwork.

You still work out a notional taxable value as if the car were taxable. If that’s over $2,000, you report the grossed-up amount through Single Touch Payroll. For an eligible EV with an illustrative $60,000 base value, available all year, that is $60,000 × 20% = $12,000, grossed up at 1.8868 to a reportable amount of $22,641.60.

That amount isn’t income tax for your employee. It is reported because the ATO says it is included in income tests for some government benefits and obligations, so it’s worth telling staff before they sign.

What happened to plug-in hybrids on 1 April 2025?

From 1 April 2025, a plug-in hybrid is no longer a zero or low emissions vehicle under FBT law. A PHEV keeps the exemption only if both of these are true:

1. 1It was used, or available for private use, before 1 April 2025, and that use was exempt.
2. 2There was a financially binding commitment to keep providing it on and after 1 April 2025.

The exemption ends from the date of any new commitment. The ATO lists what counts as one: an optional extension (the exemption stops at the original end date), a break in the novation (such as unpaid leave where the novation stops), a change to lease payments or residual value, and a change of employer, even within the same group of companies.

The ATO’s own examples include an employee adding a bull bar and luggage racks to the lease, which changed the residual value and ended the exemption from that day. If you have a PHEV on a novated lease, ask before anyone touches the contract.

What changes for electric cars from 1 April 2027?

In the 2026–27 Federal Budget on 5 May 2026, the Government announced changes to the electric car discount. The ATO lists these as announced measures, so check their status before relying on them for a new lease.

The ATO says existing leases won’t be affected. Separately, the Government will review the exemption by mid-2027.

What do you have to lodge, and by when?

The FBT year runs from 1 April to 31 March. You must lodge an FBT return if you have FBT payable or paid FBT instalments during the year. If you’re registered but owe nothing, send a notice of non-lodgment by the time the return would normally be due.

If a due date falls on a weekend or public holiday, it moves to the next business day.

What records do you need to keep for a novated car?

Keep enough to show how you calculated the taxable value and to support any exemption you used. Records are kept for 5 years from the date you lodge your FBT return. For a novated car, that usually means:

• the lease agreement and novation deed
• the car’s purchase documents, so you can prove base value and, for an EV, its LCT position
• payroll records of every after-tax contribution
• for an exempt EV, the notional taxable value you calculated
• for the operating cost method: running costs, a 12-week logbook and odometer readings on 1 April and 31 March

The logbook is where most claims fall over. In one ATO audit, a business’s logbooks didn’t record the minimum details for each journey, so the statutory formula was applied instead. The ATO added a 75% administrative penalty. Our breakdown of why FBT logbooks fail an ATO audit covers the specific gaps.

If a novated lease uses the statutory formula, you don’t need a logbook at all, and a spreadsheet of contributions is enough. A logbook only matters when you or your employee want the operating cost method, or when the same people also drive utes you’re treating as FBT-exempt.

When you do need one, Axlerun records trips free on the Drive plan, manually or by automatic GPS, for your first 3 vehicles. The ATO logbook export is on Cruise, at $10.99 per vehicle per month, with no hardware and no lock-in. Your accountant still makes the call on which method suits each car.