Novated lease
EV vs plug-in hybrid on a novated lease in 2026
Short answer: a battery electric vehicle (EV) is still the better choice on a novated lease. Since 1 April 2025, a plug-in hybrid (PHEV) is no longer an eligible zero or low emissions vehicle under FBT law, so a new PHEV novated lease attracts fringe benefits tax. An eligible EV under the luxury car tax threshold for fuel-efficient vehicles (A$91,661 for 2026–27) is still exempt. PHEVs already exempt before 1 April 2025 keep the exemption only while their original, financially binding lease continues unchanged. Source: ATO, FBT on plug-in hybrid electric vehicles.
General information, not tax advice.
General information, not tax advice. Rules change and your circumstances differ. Check the ATO sources linked here and speak to a registered tax agent or your employer's payroll team before you decide.
EV vs PHEV at a glance
| Battery EV | Plug-in hybrid (new lease from 1 April 2025) | |
|---|---|---|
| FBT electric cars exemption | Yes, if eligible and under the LCT threshold | No |
| FBT payable on private use | None while exempt | Yes, usually reduced by paying part of the lease from post-tax pay |
| Home charging claim | ATO rate 5.47c/km from 1 April 2026 | PHEV method in PCG 2024/2 since Nov 2025 |
| Exemption after 31 March 2027 | Proposed changes; see our FBT explainer | Not applicable |
Sources: ATO PHEV page, ATO electric cars exemption, ATO PCG 2024/2.
Who keeps the PHEV exemption?
The ATO says the exemption continues only if both:
- the PHEV was used, or available for use, before 1 April 2025 and that use was exempt (the ATO has no discretion to extend this, even for delivery delays); and
- there was a financially binding commitment before 1 April 2025 to keep providing the car for private use.
It ends from the date of any new commitment, including:
- an optional lease extension (options aren't binding);
- a break in the novation, for example unpaid leave where you take over the payments;
- changes to the payments or residual, such as adding accessories to the lease;
- changing employer.
The ATO's example: Simon's 3-year PHEV lease from 1 April 2024 stays exempt to 31 March 2027, but not for any extension after that. Source: ATO.
What this means for you
- Choosing a new car: on FBT alone, an eligible EV comes out ahead on a novated lease. Run both prices in our novated lease calculator (it assumes no FBT, so it is only valid for an eligible EV).
- Already in an exempt PHEV lease: avoid changing the lease (adding accessories, extending or restructuring) without asking your provider how it affects the exemption.
- Watch the 2027 change: the full EV exemption runs to 31 March 2027, with changes proposed after that. Read the EV FBT exemption after March 2027.
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FAQ
Are plug-in hybrids still FBT-exempt on a novated lease?
Not for new commitments from 1 April 2025. Only PHEVs that were exempt and under a binding commitment before that date keep it, until the commitment changes or ends.
Can I extend my PHEV lease and stay exempt?
No. The ATO treats an optional extension as a new commitment, so the exemption ends.
Does adding accessories to a PHEV lease matter?
Yes. Changing the payments or residual value creates a new commitment, which ends the exemption from that date.
What is the EV price cap for the exemption?
The car's value must be under the luxury car tax threshold for fuel-efficient vehicles, A$91,661 for 2026–27.
Sources
- ATO, FBT on plug-in hybrid electric vehicles: 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/fbt-on-plug-in-hybrid-electric-vehicles
- ATO, What's new in FBT (2025 return instructions): https://www.ato.gov.au/forms-and-instructions/fringe-benefits-tax-return-2025-instructions/whats-new-in-fbt
- ATO, 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
- ATO, Luxury car tax rate and thresholds: https://www.ato.gov.au/tax-rates-and-codes/luxury-car-tax-rate-and-thresholds
- ATO, PCG 2024/2: https://www.ato.gov.au/law/view/pdf?DocId=COG%2FPCG20242%2FNAT%2FATO%2F00001&PiT=20260325000001&filename=law%2Fview%2Fpdf%2Fcog%2Fpcg2024-002c2.pdf
Last checked: 21 October 2026. General information only, not tax, financial, legal or credit advice. We don’t recommend any provider; where businesses are named, it’s for information. See our affiliate disclosure.