‘Grandfathering’ rules for existing FBT-exempt novated leases

How existing novated leases will be treated once the FBT exemption changes come in

If you have an existing novated lease that’s exempt from FBT or are considering starting one soon, you may well be wondering what will happen to it once the proposed phasing down of the FBT exemption starts from 1 April 2027.

The good news is that if your lease is exempt from FBT when you start it, you will keep the FBT exemption on that lease, even after the rules for new leases change.

In other words, if you would like to take advantage of the FBT exemption on an electric car novated lease for the full duration of your term, you’ll need to start it before the rules change. Then once you’re in, you’ll keep the benefit as long as you don’t make any changes that would trigger the vehicle’s eligibility to be reassessed under the new rules.

As a reminder, the first phase of the proposed changes to the FBT exemption will start on 1 April 2027. From that date onwards, only EVs valued up to $75,000 will be eligible for an FBT exemption. More premium EVs valued above $75,000 and up to the luxury car tax (LCT) threshold will only be eligible for a 25% FBT discount.

But again, if you start a lease on a more expensive EV that’s currently eligible for an FBT exemption, your lease will retain the benefit, even after 1 April 2027 when a new lease on exactly the same vehicle might no longer be eligible.

For eligible EVs valued at $75,000 or less, the proposed deadline for entering a new arrangement with a full FBT exemption is 31 March 2029.

What happens if I change jobs during the lease?

Under the current proposals, if you change jobs during your novated lease and move your lease to your new employer (even if it’s within the same corporate group), that would be considered a new ‘binding commitment’ for FBT purposes.

In that scenario, the ‘new’ lease would be subject to the rules that apply to that vehicle at the time the new commitment starts.

Let’s look at an example of how this might work:

• You start a new novated lease on an EV that’s exempt from FBT
• A year later you move to a new employer who takes on the novated lease on the same vehicle
• For the purpose of working out eligibility for an FBT exemption or discount, this would effectively be like starting a brand new lease
• You would therefore be eligible for whatever exemption or discount is available on your vehicle at that time
• If the vehicle is, for example, currently eligible for a 25% FBT discount (instead of the full exemption that applied to the initial agreement), that’s the benefit that would apply when your new employer takes over the arrangement
• This would likely mean you’d need to pay more for the lease than you were prior to the change in jobs

At this stage, the proposed phase-down of the FBT exemption has not been passed into law and there could still be changes to how this ends up working in practice.

What if I want to refinance my lease or make another change mid-term?

Under the current proposals, refinancing your lease – for example, by switching lenders – would also effectively mean starting a new lease. In that case, your vehicle would be reassessed under the rules that apply at the time of your refinance.

The same would be true if you changed the lease term or residual value, or fitted accessories that increased your lease payments.

If you were previously eligible for an FBT exemption, but your vehicle no longer qualifies under the rules applying to the new commitment, refinancing the lease could mean you lose the FBT exemption.

Setting up your lease to last: How to keep the FBT exemption throughout your novated lease

If you want to maximise the savings on your novated lease before any changes to the FBT exemption rules come into effect, starting your lease sooner rather than later may be a good idea.

If you start your lease before 1 April 2027 and it’s FBT exempt, you’ll keep the exemption as long as your lease doesn’t change, or to use that technical term again, there’s no trigger for a new ‘binding commitment’ coming into effect.

You also want to set up your lease to avoid any scenarios where you need to make avoidable changes down the track.

That could mean:

• Choosing the right leasing provider and getting a good deal on the finance from day one
• Anticipating any accessories you may want added to the vehicle and including them as part of the novated lease from the get-go
• Carefully considering the lease term so you can maximise the savings, while avoiding a scenario where you may want to make a change down the track

If you currently have a novated lease and you would be planning to change cars when your current lease ends, you could consider taking out a novated lease on the new vehicle before the rules change.

This may mean you have a period of overlap between the two cars (and a larger reduction to your take-home pay in that period), but if it means being able to lock in the FBT exemption on the new vehicle, this could make sense in the long run, depending on your situation.

Whatever you’re considering, we’d recommend a chat with your tax accountant and having a no-obligation conversation with a novated lease specialist before you make any decisions. They may have options and solutions that you haven’t thought of, or examples of customers in a similar situation to yours that may be helpful in guiding your decision.

What if I need to make other changes to my lease?

More straightforward changes that don’t alter the underlying lease agreement are not expected to impact your vehicle’s existing FBT status under the proposals. Examples would include increasing or decreasing your running costs budget or switching your car insurance provider. It’s a good idea to check any specifics you’re unsure about with your provider.