When exploring novated leasing in Australia, one term that often raises eyebrows is Fringe Benefits Tax (FBT). It sounds complicated, but with the right structure, and a provider like Fingo, understanding FBT and managing its impact becomes straightforward.
This guide unpacks what FBT is, how it applies to novated leases, and how you can minimise or eliminate it in 2025.
What Is Fringe Benefits Tax (FBT)?
FBT is a tax paid by employers on certain benefits they provide to employees outside of their salary, such as company cars, entertainment, or gym memberships. When you lease a car under a novated agreement, it is considered a fringe benefit, and FBT may apply.
However, not all novated leases are taxed equally. The ATO offers ways to reduce or even eliminate FBT liability, especially for electric vehicles (EVs) or when using the Employee Contribution Method (ECM).
How FBT Works with a Novated Lease
Here’s how it typically plays out:
- You salary-package a car through a novated lease.
- The car is available for personal use (even if just for commuting).
- This triggers a potential FBT liability.
The ATO then calculates FBT using a statutory formula, based on:
- The car’s base value (purchase price including GST)
- 20% of that value (annualised)
- Days the car was available for use
- Any employee contributions (which reduce the FBT payable)
How to Reduce FBT with the Employee Contribution Method (ECM)
The ECM allows you to make after-tax payments toward the lease or running costs. These contributions reduce the taxable value of the fringe benefit. If your ECM payments equal or exceed the FBT amount, the FBT liability effectively becomes zero.
This method is widely used by novated lease providers like Fingo to structure your lease for maximum tax efficiency.
Employer Obligations
Technically, FBT is the employer’s responsibility. They report it to the ATO and may include the taxable benefit on your payment summary. However, most employers pass the FBT cost onto the employee as part of the salary package agreement.
With Fingo’s help, employers benefit from:
- Automated FBT calculations
- Employee contribution tracking
- ATO-compliant reporting and documentation
Why FBT Shouldn’t Scare You
While FBT sounds like an extra tax burden, in a well-structured novated lease, it’s usually neutralised through ECM or eliminated entirely with an EV. The real benefit? You get to drive a fully maintained vehicle with pre-tax dollars, boosting your net income while enjoying convenience.
Plus, tools like Fingo’s novated lease calculator help forecast your FBT liability (if any), so there are no surprises.
Mastering FBT with Fingo
Understanding Fringe Benefits Tax is key to maximising the benefits of novated leasing. With expert structuring, FBT is not only manageable, it’s often avoidable.
Whether you’re driving a petrol car with ECM applied or switching to an FBT-free electric vehicle, Fingo ensures your lease is optimised for maximum tax savings and minimal admin.
Ready to explore your options? Visit Fingo today and get clarity on how FBT impacts your novated lease.