One of the most common questions I receive is how to take out a novated lease while minimizing the cost by avoiding the implications of Fringe Benefits Tax (FBT). A novated lease can be a highly beneficial way to finance a vehicle, as it offers tax advantages and the ability to bundle vehicle expenses into one manageable payment. However, many individuals are concerned about how FBT may increase the overall cost of the lease, especially when the vehicle is used for personal purposes.Fortunately, there are a couple of ways to structure a novated lease that can help minimize or even eliminate the impact of FBT, ensuring that you can make the most out of your lease without facing unnecessary costs. Two key strategies to consider are talking to your employer about running a lease on high business use and taking advantage of the FBT exemption available on electric vehicles.

1. Running a Lease on High Business Use

A major factor that influences whether FBT is applied to a novated lease is how the vehicle is used—specifically, the proportion of business versus personal use. FBT is generally calculated based on the vehicle’s private use or statutory method, so if you can demonstrate that the vehicle is primarily used for business purposes, the impact of FBT can be significantly reduced under the Operating method.

To take advantage of this, you should start by discussing your business use with your employer. It’s important to have a clear understanding of what qualifies as business use, as well as how your employer is able to track this. In some cases, employers may be willing to structure the novated lease in a way that reduces the private use component—such as requiring you to keep detailed logs of business-related travel and journeys.

If your vehicle’s business use is more than 50% of the total usage, you can apply for a reduced FBT liability or potentially eliminate it altogether. This is an excellent strategy for those who rely heavily on their vehicle for work-related purposes, such as sales representatives, tradespeople, or anyone whose job requires significant travel.

2. Taking Advantage of the FBT Exemption on Electric Vehicles

The Australian Government has introduced an FBT exemption for electric vehicles, which can be a game-changer for anyone looking to minimize the costs associated with a novated lease. Under the current scheme, electric vehicles that meet certain conditions are exempt from FBT, making them a highly attractive option for employees and employers alike.

To take full advantage of this exemption, ensure that the electric vehicle you choose is eligible. The vehicle must be a zero-emissions model, first held and used on or after 1 July 2022 and have not triggered the luxury car tax limit. If you meet these requirements, you can lease the EV without having to worry about the usual FBT charges.

In addition to the FBT exemption, EVs often come with other financial incentives, such as reduced registration fees or subsidies for purchase. Depending on your state or territory, there may be additional rebates or incentives that can further reduce the overall cost of the lease. These benefits make electric vehicles a compelling option for anyone looking to make a more sustainable choice while also minimizing the tax burden associated with a novated lease.

For more information contact us today, our team of friendly and experienced leasing consultants are here to help.