The short answer: for many employed people buying an eligible electric vehicle, a novated lease can be genuinely cost-effective in 2026, mainly because eligible battery electric cars can be exempt from fringe benefits tax. That exemption is the difference-maker, and it comes with conditions set by the ATO. It is not automatic, it does not apply to plug-in hybrids anymore, and it is under review, so it is not guaranteed forever. A novated lease also ties the car to your job and leaves a residual amount to pay at the end. So it can be worth it, but only once you have priced your specific situation and had the tax side checked by a professional. This guide explains how it works and what to weigh up.
I worked at a dealership before I became a broker, so I have watched this play out from both sides. Here is the order that keeps you in control.
A novated lease is a three-way arrangement between you, your employer and a finance provider. Your employer makes the lease payments from your pre-tax salary, which can lower your taxable income, and a fully maintained lease can bundle running costs like insurance, servicing, registration and fuel or charging into one regular payment. You do not own the car during the lease, and at the end there is a residual amount to pay if you want to keep it. Because payments come out before tax, the structure can be more tax-effective than paying for a car with after-tax income.
Eligible electric cars get a specific tax break that petrol cars do not. The ATO provides a fringe benefits tax exemption for eligible zero or low emissions electric cars that meet its conditions. Those conditions include the car being first held and used on or after 1 July 2022 and being under the luxury car tax threshold for fuel-efficient vehicles, and benefits provided under a salary packaging arrangement can be included. Removing fringe benefits tax from the equation is what makes an eligible EV on a novated lease noticeably cheaper than the same arrangement on a petrol car.
The exemption is valuable but conditional, and two points matter in 2026. First, the ATO confirms that plug-in hybrid vehicles are no longer eligible for this exemption from 1 April 2025, so a PHEV does not get the same treatment. Second, the government will review the exemption by mid-2027, which means the rules could change. Eligibility also depends on the car staying under the luxury car tax threshold and meeting the other conditions. None of this is a reason to avoid a novated lease, but it is a reason to confirm eligibility for your specific car and to not count on the saving without checking.
A novated lease has real trade-offs alongside the tax upside. The arrangement is tied to your employment, so if you change jobs the lease may come back to you to manage. You do not own the car during the term, and the residual payment at the end needs planning for. There can be limits and assumptions around kilometres and running costs. Whether the overall package beats a straightforward car loan depends on your salary, the car, and how long you keep it, which is exactly why a like-for-like comparison is worth doing before you commit.
It comes down to your income, the car and the numbers. For a higher-earning employee buying an eligible EV and keeping it for the lease term, the fringe benefits tax exemption and pre-tax payments can add up to a meaningful saving. For someone on a lower income, buying a petrol car, or likely to change jobs soon, a simple car loan may be cleaner. The only way to know is to price both and have the tax treatment checked, because the saving depends entirely on your circumstances and the current rules.
Is a novated lease cheaper than a car loan for an EV? It can be, mainly because eligible electric cars can be exempt from fringe benefits tax and payments come from pre-tax salary. Whether it beats a car loan depends on your income, the car and how long you keep it, so compare both for your situation.
Do plug-in hybrids qualify for the novated lease EV tax break? No. The ATO confirms plug-in hybrid vehicles are no longer eligible for the electric cars exemption from 1 April 2025. The exemption applies to eligible battery electric and other qualifying zero or low emissions vehicles that meet the conditions.
What happens to my novated lease if I change jobs? The lease is linked to your employer, so if you leave, the arrangement may transfer to a new employer if they offer novated leasing, or come back to you to manage. It is worth understanding this before you start.
Will the EV fringe benefits tax exemption last? It applies now for eligible vehicles, but the government will review it by mid-2027, so the rules could change. Confirm the current position with the ATO or a tax adviser before relying on it.
Written by Ashley, founder of Noma Finance. Before becoming a finance and asset broker, Ashley worked at car dealerships and has personally held every loan type Noma helps with. Noma compares options across a panel of lenders to help people find finance that fits their situation, explained in plain English.
If you want to compare a novated lease against a straight car loan for your situation, we can run both and explain the difference, and point you to a tax professional for the tax side. Book a call or apply online.
This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not financial, credit or tax advice. Tax outcomes for a novated lease depend on your circumstances and current ATO rules, so speak with a licensed tax adviser or accountant before relying on any saving. Information is current as at the date below and the rules can change, so check the linked sources for the latest.
Last updated: July 2026.
- Australian Taxation Office, Electric cars exemption: https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/electric-cars-exemption
- ASIC Moneysmart, Car loans: https://moneysmart.gov.au/loans/car-loans
Sources last checked July 2026.
Written by Ashley, founder of Noma Finance. Before becoming a finance and asset broker, Ashley worked at car dealerships, and has personally held every loan type Noma helps with. Noma compares options across a panel of lenders to help people find finance that fits their situation, explained in plain English.
This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not financial, credit or tax advice. Consider whether it is appropriate for you and seek advice from a licensed professional before making a decision. Tax outcomes for novated leases and chattel mortgages depend on your circumstances, so speak with a licensed tax adviser or accountant. Any figures used are illustrative only.
