Is It Worth Salary Sacrificing an Electric Car?
Salary sacrificing an electric car is fast becoming a smart financial and environmental choice for many Australians. The combination of tax benefits, lower running costs, and eco-friendly driving makes it an attractive option. But is it truly worth it for you? This comprehensive guide breaks down how salary sacrificing works for electric vehicles (EVs), the financial perks including important Fringe Benefits Tax (FBT) exemptions, which EVs qualify for, and what savings you can realistically expect over time.
How Does Salary Sacrificing an Electric Car Work?
Salary sacrificing usually takes the form of a novated lease, where your employer deducts lease payments from your pre-tax salary. This lowers your taxable income, so you pay less tax. Unlike a traditional car loan, where you pay from your after-tax income, salary sacrificing maximises tax efficiency.
With an electric car novated lease, your lease payments and often running costs like insurance, maintenance, and charging are bundled into one manageable, pre-tax payment. This structure simplifies budgeting while providing substantial tax savings.
The Financial Benefits of Salary Sacrificing for an Electric Car
Salary sacrificing for an electric car offers several financial benefits that can make driving an EV more affordable and rewarding.
1. Significant Tax Savings
One of the biggest draws of salary sacrificing for an EV is the tax advantage. Because payments come from your pre-tax salary, your taxable income decreases, and so does your tax payable. The result? More money in your pocket every pay cycle.
2. Fringe Benefits Tax (FBT) Exemption
Electric vehicles have an important additional advantage: many qualify for FBT exemption under Australian tax law.
The FBT exemption applies to novated leases on electric vehicles, plug-in hybrid electric vehicles (PHEVs), and hydrogen fuel cell EVs.
To qualify, the vehicle’s value must be below the Luxury Car Tax (LCT) threshold, which is $91,387 as of July 1, 2023.
This exemption means you avoid the extra tax normally payable on car fringe benefits, boosting your overall savings.
This is a game-changer for many salary sacrificers, as FBT is often the largest tax cost associated with novated leases.
3. Lower Running Costs
Electric cars are cheaper to run than petrol or diesel vehicles because:
They have fewer moving parts, reducing maintenance and servicing costs.
Electricity to charge is generally cheaper than petrol or diesel per kilometre driven.
Many states offer incentives such as reduced registration fees or rebates on EV purchases.
Which Electric Vehicles Are Eligible for Novated Leasing with FBT Exemption?
Here are some popular EVs and PHEVs eligible for novated leasing with FBT exemption under the current LCT threshold:
Tesla Model 3 (Standard Range Plus)
MG ZS Excite EV
BYD Atto 3
Kia EV6 (Select trims under LCT)
Volvo XC40 Recharge PHEV
Mitsubishi Outlander PHEV
Mercedes-Benz EQB 300
Many more models qualify, and the list is expanding as more affordable electric vehicles enter the Australian market.
Visualising Your Savings: 5-Year Cost Comparison
Imagine a salary sacrificing novated lease on an electric car compared with buying a petrol vehicle outright. Here's a rough estimate of potential savings over five years:
Expense Category | Salary Sacrificed EV | Outright Petrol Car | Savings Over 5 Years |
---|---|---|---|
Purchase Cost | $70,000 (lease) | $60,000 (buy) | - |
Tax Savings | $12,000 | $0 | $12,000 |
Running Costs (fuel, maintenance) | $8,000 | $15,000 | $7,000 |
Insurance & Registration | Included | $6,000 | $6,000 |
FBT | Exempt | N/A | Significant |
Total Estimated Cost | $78,000 | $81,000 | $3,000+ savings |
Figures are illustrative. Actual savings vary depending on salary, car model, and usage.
Potential Downsides to Consider
While the financial and environmental benefits are compelling, it’s important to consider:
Upfront Cost of EVs: Electric vehicles can still carry a higher sticker price than equivalent petrol cars, although the gap is closing rapidly.
Charging Infrastructure: Although improving, some regional or rural areas may lack sufficient charging stations.
Lease Commitment: Novated leases are binding contracts that require you to continue payments regardless of employment changes, unless your new employer supports novated leasing.
Is Salary Sacrificing an Electric Car Right for You?
If you’re environmentally conscious, want to maximise tax savings, and appreciate predictable running costs, salary sacrificing an EV is a compelling option. Especially if you’re in a higher tax bracket, the tax and FBT advantages can make a huge difference to your budget.
However, if you prefer outright ownership, rarely drive, or live in areas with limited charging, you might want to weigh other options.
Final Thoughts
Salary-sacrificing an electric car offers significant financial and environmental benefits. Tax savings, combined with FBT exemption and lower running costs, make it a financially savvy choice for many Australians, especially those in higher tax brackets.
If you want to learn how salary sacrificing an EV can benefit you personally or explore eligible models, contact Novated Finance Australia today. Our experts will help you navigate the process and maximise your savings while driving cleaner.
FAQs
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It’s a novated lease arrangement where car payments and running costs come from your pre-tax salary, lowering your taxable income.
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Most EVs, PHEVs, and hydrogen fuel cell vehicles under the $91,387 LCT threshold qualify, including popular models like Tesla Model 3 and MG ZS.
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Savings depend on your income and lease details but can include thousands in tax savings plus lower running costs and FBT exemption.
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Consider the higher upfront price of EVs, charging infrastructure availability, and the commitment of lease payments.
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Yes, many novated leases bundle charging, maintenance, insurance, and registration costs into one payment.