Medical practices across Melbourne are increasingly considering electric vehicle salary packaging as part of a broader remuneration strategy. For the right employee and the right entity structure, it can be tax-effective and commercially useful. The benefit works well when the vehicle qualifies, the salary packaging documents are correct, and payroll and FBT reporting are handled properly from the outset.
Which electric vehicles qualify for the FBT exemption in 2025–26?
Eligible battery EVs and hydrogen fuel cell cars can be FBT-exempt if first held and used from 1 July 2022 and under the car threshold.
The exemption applies to eligible electric cars and associated car expenses where the car is first held and first used on or after 1 July 2022, and its value at first retail sale is below the fuel-efficient car threshold for the relevant FBT year. For 2025–26, that threshold is $91,387.
Associated car expenses can also be exempt where they relate to an eligible electric car. This can include registration, insurance, repairs, maintenance, and electricity used to charge the vehicle — a material practical benefit for practices packaging the full cost of vehicle ownership.
A material update from 1 April 2025 is that plug-in hybrid electric vehicles (PHEVs) are no longer generally eligible for the exemption. Transitional treatment may still apply where there was a financially binding commitment entered into before 1 April 2025 and the vehicle's use was already exempt before that date. Any existing salary packaging arrangements referencing PHEV eligibility should be reviewed against this change.
For most Melbourne medical practices, the practical candidates are senior employed staff — practice managers, employed doctors, specialists, and clinical leads employed through a company or trust structure with an established payroll function. For a broader overview of how income tax applies to medical professionals, see our guide on how doctors are taxed in Australia.
How does EV salary packaging work in a Melbourne medical practice?
EV salary packaging swaps part of pre-tax salary for lease and running costs, while the exemption can remove the employer's FBT cost.
The most common structure is a novated lease. The employee selects a vehicle, a finance provider acquires it, and the medical practice makes lease and associated running-cost payments under a salary-sacrifice arrangement. The effect is generally to reduce the employee's pre-tax salary, while the practice provides the benefit without incurring FBT, provided the exemption applies to the vehicle and the arrangement is correctly documented.
This structure is available where the practice operates through a company or trust and has an active payroll function. It is not equivalent to a business owner purchasing a vehicle for personal use, and care is required to distinguish employer-provided car benefits from arrangements that do not attract FBT treatment.
What records and reporting does a medical practice need for the EV FBT exemption?
Practices need eligibility evidence, a written salary packaging agreement, and RFBA reporting where required, even when no FBT is payable.
This is an area where compliance requirements are frequently misunderstood. Even where an EV benefit is exempt from FBT, the ATO requires employers to calculate the notional taxable value of the benefit for reportable fringe benefits amount (RFBA) purposes. Exempt car benefits are not simply excluded from all reporting obligations.
At a minimum, a practice should retain the following records:
- Purchase or lease documentation evidencing the vehicle type and acquisition date
- Evidence of the car's first-held and first-used date and its value against the threshold
- A written salary-sacrifice or novation agreement, executed before deductions commence
- Payroll records reflecting how the arrangement was implemented
- FBT year-end workpapers documenting notional taxable value and any RFBA calculations
For Melbourne medical practices liable for Victorian payroll tax: exempt fringe benefits and fringe benefits with a nil taxable value do not need to be declared for payroll tax purposes. This improves the effective cost of these arrangements for larger practices already within the payroll tax system. Our business tax services include FBT compliance support and payroll tax review for medical practices.
Can a practice owner package an electric vehicle in a salary package?
A practice owner can usually salary package an EV only where they are a genuine employee of a company or trust, not a sole trader.
The FBT regime applies to benefits provided to employees in respect of their employment. A sole trader cannot salary package a vehicle to themselves, because the FBT relationship requires a distinct employing entity and an employee.
Where a practice owner operates through a company or trust structure and is genuinely employed by that entity, EV salary packaging may be available on the same terms as other employed staff. The analysis depends on the entityis structure, whether the owner draws a salary, and whether the employment relationship is documented correctly.
The position for sole traders is different and should not be described as salary packaging. A practice restructure may be warranted for other reasons, but that decision should be assessed on its own merits — the EV packaging benefit alone is rarely sufficient justification for restructuring. Our overview of company structure in Australia covers the key considerations for practices weighing a change in entity type.
What tax savings can a doctor or practice manager expect from EV salary packaging?
Savings can be material, but they depend on lease costs, income tax bracket, RFBA effects, and whether the vehicle fully meets the exemption rules.
Packaging eligible lease and running costs from pre-tax salary can improve after-tax cash flow compared with funding the same costs from after-tax income at the employee's marginal rate. However, the actual benefit depends on a range of variables and should be modelled specifically for each arrangement.
The table below sets out the key modelling inputs by employee type:
| Employee type | Typical use case | Key variables to model |
|---|---|---|
| Practice manager | Retention and remuneration packaging | Lease cost, running costs, RFBA effect on income tests |
| Employed GP | Senior package design | Entity eligibility, payroll setup, and personal marginal rate |
| Specialist employee | Higher-cost vehicle decision | Threshold eligibility, RFBA, contract and deed drafting |
An important consideration that precise savings calculations often omit: even where no FBT is payable, the arrangement can still create a reportable fringe benefits amount. That amount is not taxed directly, but it is included in some income tests, including Medicare levy surcharge and study and training loan repayment calculations. Employees should obtain their own modelling before proceeding.
How should a Melbourne medical practice implement EV salary packaging?
Start with entity eligibility, choose a provider who understands the exemption, document the arrangement properly, and review reporting each year.
A sound implementation sequence for medical practices is as follows:
- Confirm the employing entity. The practice must operate through a company or trust, with payroll — a sole trader or partnership cannot provide fringe benefits in the same way.
- Confirm vehicle eligibility. Check the vehicle type, value against the current threshold, and the first-held and first-used date.
- Document the arrangement in writing before it starts. Payroll deductions should be supported by a genuine written employee agreement that the employee can withdraw in writing.
- Align payroll, lease administration, and FBT obligations, including RFBA calculations, prior to the first pay period affected.
- Review the arrangement annually against current FBT year thresholds and any ATO guidance updates — particularly relevant given the PHEV rule change from 1 April 2025.
Common failure points include the wrong employing entity, vehicles that narrowly miss the value threshold, salary-sacrifice deeds executed after the arrangement has already started, and missed RFBA reporting at year end. Each of these carries a compliance cost that outweighs the convenience of a quick setup. EV packaging sits alongside broader tax planning for Melbourne medical practices — it works best when the entity structure, payroll, and remuneration strategy are already well-organised.
Key compliance points for practices
- Check the car qualifies under the current EV rules (battery EV or hydrogen fuel cell; PHEV transitional rules checked).
- Confirm the threshold test at first retail sale — the car's value must be below $91,387 for 2025–26.
- Put the salary-sacrifice deed in place before deductions start.
- Retain lease, payroll, and eligibility records for the FBT year.
- Calculate the notional taxable value for RFBA reporting, even where no FBT is payable.
- Review the arrangement each FBT year against current thresholds and ATO guidance.
To discuss EV salary packaging for your medical practice, contact us or reach us at enquiry@42advisory.com.au · +61 3 9997 7081 · Chadstone, Melbourne VIC.
The information provided is general in nature and does not constitute specific tax, legal, or financial advice. We recommend seeking professional advice tailored to your individual circumstances.