Written by Daniel Dubois

With petrol and diesel prices remaining volatile and continuing to strain household budgets, many employees are reassessing the true cost of running a traditional vehicle. Against this backdrop, electric vehicles (EVs) have become more attractive not only due to lower running costs, but because current tax rules still provide significant incentives for salary packaging an eligible EV.

What is salary packaging an electric vehicle?

Salary packaging (or salary sacrifice) allows employees to pay certain costs from pre‑tax income, reducing taxable salary. When applied to vehicles, this is usually done through a novated lease, where lease payments and running costs are deducted from gross pay.

FBT exemption – the main tax advantage

Ordinarily a salary packaged vehicle this would trigger Fringe Benefits Tax (FBT), however eligible electric vehicles are currently exempt. As FBT is normally charged at 47%, removing it significantly improves the cost‑effectiveness of salary packaging compared with petrol or diesel vehicles.

To qualify, the vehicle must be

a battery electric or hydrogen fuel cell vehicle

Plug‑in hybrid vehicles generally no longer qualify from 1 April 2025 unless grandfathered under older arrangements.

first held and used on or after 1 July 2022,
not subject to luxury car tax

for electric vehicles acquired this year, the threshold is $91,387

designed to carry under one tonne and fewer than nine passengers, and
provided to a current employee.

What costs can be packaged?

Eligible EV arrangements can typically include lease repayments, registration, insurance, servicing, tyres, and electricity used to charge the vehicle. Where charging occurs at home, the ATO allows simplified methods to calculate electricity costs, reducing record‑keeping.

How does this save tax?

Savings arise because vehicle costs are paid from pre‑tax income, no FBT is payable, and GST is factored into the arrangement. For employees on moderate to higher marginal tax rates, this can reduce the effective cost of a vehicle by thousands of dollars per year, alongside savings from avoiding petrol or diesel.

Worked example – $90,000 salary: buy privately vs salary package an eligible EV

Assumptions:
• Gross salary $90,000
• Resident individual, no other deductions or offsets
• Medicare levy 2% applies
• Eligible battery electric vehicle (FBT‑exempt)
• Annual vehicle cost (lease + running costs) $15,000

Estimated annual benefit of salary packaging

The benefits will be even greater for those on higher salaries given higher marginal tax rates

An important consideration – reportable fringe benefits

Although FBT is not payable, the benefit may still be reportable on the employee’s income statement. This does not increase income tax but can affect HELP repayments, Medicare levy surcharge, private health insurance rebates, and other income‑tested items.

Final thoughts

In an environment of ongoing fuel price pressure, salary packaging an eligible electric vehicle remains one of the most tax‑efficient ways for employees to manage vehicle costs. However, eligibility rules and personal circumstances matter, and tailored advice is essential before proceeding.

If you are considering Salary Packaging an electric vehicle for yourself or offering through your business to your employees, please reach out to your Salt Adviser so we can support your decision making process.

Salary Packaging an Electric Vehicle: A Smart Response to Rising Fuel Costs