The Australian Government has announced a staged reduction of the Fringe Benefits Tax (FBT) exemption for electric vehicles (EVs), following the 2026 statutory review of the Electric Car Discount. While EV incentives will continue, the policy is shifting toward a more targeted and fiscally sustainable approach.
Importantly, there are no immediate changes. The current full FBT exemption remains available until 31 March 2027, meaning existing salary packaging and novated lease arrangements continue as normal for now.
Key Overview
The EV FBT exemption has been one of the main drivers behind Australia’s rapid growth in electric vehicle uptake, particularly through novated leasing arrangements that allow employees to access vehicles using pre-tax income.
However, increasing fiscal costs and distributional concerns have led the Government to restructure the concession. The new framework introduces a three-phase transition from a full exemption to a partial discount system, with a stronger focus on lower-cost EVs.
Phase 1: No Change (Now – 31 March 2027)
Current rules remain unchanged.
Eligible EVs below the Luxury Car Tax (LCT) threshold (around $91,000 for fuel-efficient vehicles in 2025–26) continue to receive a full FBT exemption.
For employers and employees, this means:
- No changes to existing novated lease or salary packaging arrangements
- Full exemption continues for eligible EVs
- No immediate compliance impact
This period provides continued certainty for EV planning and acquisitions.
Phase 2: Partial Concessions Introduced (1 April 2027 – 31 March 2029)
From April 2027, the exemption begins to phase down.
- EVs up to $75,000: continue to receive a full FBT exemption (if eligible)
- EVs above $75,000 and below the LCT threshold: receive a 25% FBT discount
This shift encourages uptake of more affordable EV models while reducing the overall cost of the incentive.
It also aligns with Australia’s broader emissions strategy, including the New Vehicle Efficiency Standards, which aim to increase supply of lower-emission vehicles in the market.
Phase 3: Long-Term Model (From 1 April 2029)
From 2029 onwards, the system becomes more uniform.
All eligible EVs under the LCT threshold will receive a flat 25% FBT discount, regardless of price.
The import tariff exemption for qualifying EVs will remain in place, ensuring continued structural support for EV adoption even as FBT concessions are reduced.
Existing Leases Will Be Protected
A key feature of the reform is the expected grandfathering of existing arrangements.
Current leases entered into before the transition periods should continue to benefit under the rules in place at the time of signing. While legislation will confirm the final details, businesses can reasonably expect existing novated lease and salary packaging arrangements to remain unaffected.
What This Means for Employers and Employees
The EV FBT exemption has significantly contributed to EV adoption in Australia, especially through salary packaging structures.
According to the statutory review, the policy:
- Supported around 64,000 additional EV sales
- Helped reduce transport emissions and fuel costs
- Increased EV accessibility across different regions
However, it also raised concerns about equity, as higher-income earners were more likely to benefit, while the fiscal cost to Government has continued to rise.
The revised approach aims to maintain EV support while improving long-term sustainability.
Practical Considerations
With the upcoming changes, planning will become increasingly important:
- Timing matters: entering arrangements before 31 March 2027 may secure full exemption benefits
- Price sensitivity increases: EVs under $75,000 will remain more tax-effective from 2027
- Fleet reviews recommended: employers should reassess total cost of ownership, including FBT impacts
- Used EVs may become more attractive as incentives narrow on new vehicles
Despite policy changes, EV adoption continues to grow strongly, with EV and PHEV sales reaching 22.9% of new vehicles in March 2026, up significantly from 2022 levels.
Final Thoughts
The phased wind-back of the EV FBT exemption reflects a clear policy shift: continued support for electric vehicles, but with tighter targeting and reduced long-term fiscal cost.
For businesses and employees, the focus now moves from “whether to act” to “when and how to structure EV arrangements effectively”.
If you are considering an EV purchase or reviewing salary packaging arrangements, early planning can help ensure optimal tax outcomes under both current and future rules.
Need Help?
By working with us as your professional tax accountant and mortgage broker, you can be confident that your loans are structured to protect your tax position, maximise deductions, and avoid costly mistakes, giving you greater peace of mind and more control over your financial future.
Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
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By Yvonne Shao @ Pitt Martin Tax
