How fringe benefits tax works with company vehicles and novated leases — and strategies to minimise your FBT liability.
Fringe benefits tax (FBT) is a tax paid by employers on certain benefits provided to employees — including vehicles available for private use. The FBT year runs from 1 April to 31 March, and the current FBT rate is 47%.
FBT applies whenever a vehicle is made available for an employee's private use, unless it's a commercial vehicle used primarily for work and private use is minor and infrequent.
A novated lease is a three-way agreement between an employee, their employer, and a finance company. The employee chooses a vehicle, the finance company provides the lease, and the employer agrees to make lease payments from the employee's pre-tax salary (salary sacrifice).
The simplest method. FBT is calculated as a flat 20% of the car's base value, regardless of how much private use there is.
Taxable value = Base value of car × 20% × (days available ÷ 365)
FBT payable = Taxable value × 2.0802 (gross-up) × 47%
This method is simpler but doesn't reward low private use. It's best for employees who drive a lot of private kilometres.
This method calculates FBT based on the actual percentage of private use. It requires a valid logbook maintained for a minimum continuous 12-week period.
Formula: Total operating costs × private use percentage
Operating costs include: depreciation, interest/lease charges, fuel, insurance, registration, maintenance, and repairs.
This method benefits employees with high business use (low private use percentage) but requires diligent record-keeping.
| Factor | Statutory Formula | Operating Cost |
|---|---|---|
| Calculation basis | 20% of car value | Actual private use % |
| Logbook required | No | Yes (12 weeks minimum) |
| Best when private use is | High (50%+) | Low (under 30%) |
| Complexity | Low | Higher |
| Affected by kms driven | No | Yes (fuel/maintenance costs) |
Employees can reduce or eliminate FBT by making post-tax contributions towards the running costs of the vehicle. These contributions reduce the taxable value of the fringe benefit dollar-for-dollar.
A well-structured novated lease often uses a combination of pre-tax (salary sacrifice) and post-tax (ECM) payments to minimise the overall tax impact. The post-tax amount is typically calculated to offset the FBT that would otherwise be payable.
The FBT exemption for electric vehicles has made novated leasing an extremely popular way to access EVs. An employee can salary sacrifice a Tesla, BYD, or similar EV with zero FBT liability — saving thousands per year compared to a petrol vehicle.
Technically yes — FBT is an employer obligation. However, in novated lease arrangements, the cost is typically passed back to the employee through salary packaging calculations. The employee contribution method (ECM) is the most common way to handle this — the employee makes post-tax payments to offset the FBT.
Dual-cab utes are typically classified as "cars" for FBT purposes and are subject to FBT if available for private use. Single-cab utes with a payload over 1 tonne may qualify for the commercial vehicle exemption if private use is minor and infrequent (e.g., commuting only).
Yes, though the range of providers is smaller for used vehicles. The vehicle typically needs to be under 5–7 years old at lease commencement. New vehicles are more common in novated leasing due to warranty and residual value considerations.
The lease obligation transfers to your new employer (if they agree) or reverts to you personally. You'd then make payments directly to the finance company. Most novated lease providers assist with the transition process.
Use our calculator to compare novated lease costs against chattel mortgage and other options for your next vehicle.
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