How you can save by buying an EV with a renewed lease contract

When comparing list prices, electric vehicles (EVs) are still often more expensive than comparable combustion engine vehicles.

However, when it comes to renewed leasing, it’s a different story – and EVs often come out ahead.

This is because Fringe Benefits Tax (FBT) is currently not payable on new electric or plug-in hybrid vehicles if they are used by a current employee or their associates (such as family members) and are subject to the luxury car tax (LCT). threshold value.

The LCT threshold for so-called ‘fuel efficient vehicles’ for the 2024/25 financial year is $91,387.

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First, what is a renewed lease?

Simply put, it’s a three-way agreement between you, your employer and a financing or leasing company that could reduce your tax liabilities.

It’s a form of salary sacrifice, where your vehicle payments are deducted from your wages before taxes are deducted. Despite this, you are still allowed 100 percent personal use of the vehicle, and you can even pre-customize your car and bundle the cost of accessories into the total cost of the vehicle.

This fact also means you should avoid the GST, as your employer can claim an input tax credit of up to $6,191 before charging you.

Not only that, but the renewed lease payments also include operating costs such as insurance, maintenance, refueling or charging, tires and registration.

Novated leasing generally reduces your tax obligations, but is considered a fringe benefit. That means your employer will have to pay FBT, which is charged at 47 percent, with the rateable value being 20 percent of the cost of the car.

However, now that the FBT does not apply to electric vehicles, this makes them a more attractive prospect for renewed lease contracts.

For example, according to Australian-owned revamped leasing provider Oly, an MG ZS EV Long Range costs less to lease than a base Suzuki Ignis… despite the Suzuki having a drive-away price of around $20,000 less than the MG.

Below are figures based on a person in Victoria earning $130,000 per year and planning to travel 15,000 km per year on a five-year lease term.

There are a few more things you need to know about renewed leasing.

Lease payments are bundled with ongoing costs such as insurance, maintenance, refueling or charging, tires and registration. This means that the costs are part of your sacrificed salary payments, increasing the tax benefit.

You can even customize your car in advance and include the costs in the overall lease agreement.

Lease periods are typically between one and five years and have a predetermined expected annual mileage.

Once you reach the end of the period, you can pay the balance or balloon payment – ​​which on a five-year lease is about 28 percent of the vehicle price – and keep the car.

Alternatively, you can refinance the amount or trade the car in and trade it in for another lease.

If you change jobs, a renewed lease may be transferable if your new employer is willing to take it over. Otherwise you must pay the rent directly.

The Australian government has not offered direct subsidies on the purchase price of electric vehicles, and state incentive programs offering them have largely dried up.

However, the Electric Car Discount offers those interested in an EV (or a PHEV, at least for the time being) an attractive option.

Disclaimer: The information on this website is for general purposes only and is not a substitute for professional financial advice. AutoExpert recommends that you obtain independent legal, financial, tax or other advice specific to your individual circumstances.