Government to Wind Back Electric Vehicle FBT Exemption in Three Stages
The Federal Government has announced a gradual reduction of the current Fringe Benefits Tax (FBT) exemption for electric vehicles (EVs), following recommendations from the Statutory Review of the Electric Car Discount released in May 2026.
While the policy continues to support the transition to cleaner transport, the Government has stated that the changes are intended to make the concession more sustainable and better targeted over the long term. The reforms are expected to improve Budget outcomes by an estimated $1.7 billion over five years from 2025–26.
Importantly, there are no immediate changes. The existing FBT exemption for eligible electric vehicles will remain fully available until 31 March 2027.
A Three-Phase Transition
Phase 1: Now to 31 March 2027
The current rules continue unchanged.
Eligible electric vehicles with a value below the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles (approximately $91,387 in 2025–26) remain fully exempt from FBT.
For businesses and employees using salary packaging or novated leasing arrangements, there is no change during this period.
Phase 2: 1 April 2027 to 31 March 2029
From April 2027, the concession begins to narrow, with the focus shifting towards more affordable electric vehicles.
Under the proposed rules:
- EVs costing $75,000 or less will continue to qualify for a full FBT exemption, provided the eligibility requirements are met.
- EVs valued above $75,000 but below the LCT threshold will instead receive a 25% reduction in the FBT liability.
The Government’s intention is to encourage manufacturers to continue supplying competitively priced EVs to the Australian market while supporting the broader objectives of the New Vehicle Efficiency Standards.
Phase 3: From 1 April 2029
From April 2029, all eligible EVs below the LCT threshold will receive a flat 25% FBT discount, regardless of their purchase price.
The separate import tariff exemption for qualifying EVs will remain in place permanently.
Existing Leases Protected
The Government has indicated that existing arrangements will be grandfathered.
This means current novated leases and other qualifying arrangements should continue to access the existing FBT concessions and will not be affected by the new rules.
While draft legislation is expected to clarify the exact scope of these transitional provisions, businesses and employees can take some comfort from the Government’s commitment to protecting existing arrangements.
Practical Considerations
Consider Acting Before 31 March 2027
Individuals considering a salary-packaged EV may benefit from entering into arrangements before the full exemption begins to be scaled back.
Given current demand and vehicle delivery timeframes, planning ahead will be important.
Review Fleet and Salary Packaging Strategies
Businesses should reassess fleet acquisition plans and salary packaging arrangements in light of the upcoming changes.
During Phase 2, EVs priced at or below $75,000 will remain particularly attractive due to the continuation of the full FBT exemption.
Assess Total Fleet Costs
For businesses operating commercial fleets, the changes may have a relatively limited impact where vehicles are used predominantly for work purposes.
Nevertheless, reviewing total cost of ownership remains important, including:
- FBT implications
- Fuel and operating costs
- Charging infrastructure requirements
- Vehicle replacement cycles
Consider the Growing Second-Hand EV Market
As the Australian EV market matures, a growing supply of second-hand electric vehicles may provide a cost-effective alternative for businesses and individuals seeking to remain below relevant pricing thresholds.
Next Steps
These reforms continue to support the transition to cleaner transport while narrowing the scope of available tax concessions.
If you are considering purchasing an electric vehicle, implementing a salary packaging arrangement, or reviewing your business fleet strategy, now is an ideal time to assess your options.
Our team can help model the financial impact of the proposed changes, compare alternative scenarios, and identify the most effective timing and structure for your circumstances.
If you would like personalised advice, please contact us. We would be happy to help you navigate the changes and make informed decisions before the new rules take effect.