The federal government has proposed winding back the popular electric vehicle FBT exemption in a staged phase-down – a scheme that proved far more popular than anyone anticipated, growing from an expected cost of $90 million this financial year to an estimated $1.35 billion. In a joint media release, Treasurer Jim Chalmers and Energy Minister Chris Bowen outlined changes informed by the government’s Statutory Review of the Electric Car Discount, with the reforms tipped to save $1.7 billion over the budget period.
For now, the full exemption remains intact, but the clock is ticking. If the proposed changes pass Parliament, depending on when you act, the difference could be thousands of dollars over the life of your lease.
The government has settled on a three-phase approach designed to gradually reduce the tax benefit rather than remove it abruptly.
For now, nothing changes. The existing FBT exemption will remain in place until the end of March 2027.
From 1 April 2027, the full exemption will only apply to EVs priced at $75,000 or less. Vehicles above $75,000 but below the luxury car tax (LCT) threshold – currently $91,387 for EVs – will receive a 25% discount on payable FBT rather than the full exemption, through a 15% statutory formula rate (rather than 20% as it applies currently and to all other vehicles after the change).
From 1 April 2029, that 25% discount becomes the new standard for all eligible EVs, regardless of price.
Luxury EVs above the LCT threshold will continue to attract the full rate of FBT, as will used EVs originally purchased before 2022. Existing novated leases will not be impacted by the changes.
The practical impact will be significant for some buyers. A $50,000 EV that currently attracts no FBT would, from 2029, face around $7,300 in annual fringe benefits tax.
That said, lease agreements are grandfathered from the date they commence. Someone who locks in a five-year novated lease in early 2029 could remain FBT exempt until the mid-2030s. This means timing is an important consideration for anyone weighing up a new EV through a novated lease.
FBT is paid by employers on certain non-cash benefits provided to employees – things like gym memberships, laptops, or cars arranged through salary packaging.
Exempting EVs from that tax made novated lease arrangements particularly attractive. Since there is no FBT, the entire lease repayment (including packaged running costs) is deducted from an employee’s pre-tax income, reducing their taxable income and potentially saving thousands compared to buying outright or financing with a personal loan.
The uptake has far exceeded expectations. In March 2026, nearly 23% of new car sales were electric or plug-in hybrid vehicles, up from less than 2% in May 2022. The peak body for national car leasing estimates around half of all EV sales are now made through novated leasing.
Beyond the budget cost, the government’s review identified fairness concerns with the scheme. Because the discount operates through the tax system, higher-income earners (who face higher marginal tax rates) receive proportionally greater benefit, what the review termed “vertical inequity.”
There are also concerns around “horizontal inequity” where the discount is only accessible to employees who can access salary packaging arrangements, effectively locking out private buyers entirely.
The government says the new price threshold will encourage manufacturers to offer more affordable EVs to the Australian market, with the full exemption anchored to the $75,000 price point from 2027 until 2029.
The government has framed the proposed changes as a recalibration rather than a reversal – particularly as EVs enjoy renewed interest amid the fuel price spikes triggered by ongoing conflict in the Middle East.
The electric car discount review warned against rapid withdrawal, pointing to disruptions caused by abrupt policy changes in other countries. The government appears to have heeded that advice, building a clear pathway with several years of notice before the final phase takes effect.
For most buyers considering an EV in the near term, the window of full tax benefit remains open.
The FBT changes create both urgency and opportunity — and getting the structure right matters. At Prosperity Smart Drive, we help you understand exactly where you stand and set up your novated lease to maximise your tax benefit before the rules change.
Get in touch with our team today to review your options.
