How FBT Applies to Novated Leases

FBT on a novated lease is calculated based on the "statutory formula" method. The taxable value is determined by a flat rate of 20% of the car’s base value, regardless of how much you drive it for personal use. This means FBT applies to all non-work-related use of the car, including driving it on weekends or holidays.

The good news is that, even though your employer is responsible for paying the FBT, they usually pass the cost onto you as part of your salary package. However, by using pre-tax dollars to cover lease expenses, you can still reduce your taxable income and potentially lower your overall tax bill.

Ways to Reduce FBT

There are a couple of ways to minimise the FBT liability on a novated lease. One of the most common strategies is using the Employee Contribution Method (ECM), which allows you to pay some of the vehicle’s operating costs from your post-tax income. By doing so, you reduce the taxable value of the benefit, and therefore the FBT, making it a more tax-effective arrangement.

Another option is to opt for a more fuel-efficient or lower-cost vehicle, which will also reduce the base value used in the FBT calculation.

Benefits of Novated Leasing Despite FBT

While FBT does increase the overall cost of a novated lease, the tax savings you gain from paying lease costs using pre-tax dollars can still make it a worthwhile option. For many employees, the convenience of bundling vehicle expenses into a single payment, along with the tax advantages, outweighs the additional FBT cost.

Curious about how novated leasing can work for you? Contact us today to find out how we can help you save on your next vehicle lease!