The recent 2026–27 Federal Budget has proposed significant changes to the outlook of electric vehicle (EV) incentives in Australia. While these adjustments have not yet been legislated, the government has signalled a clear intent to transition the current Fringe Benefits Tax (FBT) exemption into a staged phase-down. This new framework will fundamentally shift how drivers approach salary packaging and novated leasing, making EVs under the proposed $75,000 threshold the most financially strategic choice moving forward.
Read on to find out why EVs less than $75,000 are fast becoming the smartest choice for novated leasing, the emergence of mid-market efficiency, and the strategic financial benefits of purchasing an EV through novated leasing.
Under current legislation, eligible EVs accessed via a novated lease benefit from a complete FBT exemption. This framework allows employees to pay for zero and low-emission vehicles, as well as their running costs, using pre-tax income. This generous concession significantly reduces the overall cost of ownership and has been the primary driver behind the recent surge in EV salary packaging.
However, the Federal Budget proposes a staged phase-down of this incentive. From 1 April 2027 to 1 April 2029, the full FBT exemption will only apply to EVs costing $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 their payable FBT. From 1 April 2029, that 25% discount becomes the new standard for all eligible EVs, regardless of price. This phase-down firmly positions the sub-$75,000 EV category as the most tax-efficient segment of the market from 1 April 2027.
Read more about the phase-down of the FBT exemption in our article, Federal Budget: Proposed EV tax changes explained.
Importantly, a lower purchase price does not require a compromise on performance or efficiency. Data from the Australian Government’s Green Vehicle Guide shows that drivers do not need a luxury price tag to achieve top-tier energy consumption, with the 2024 Toyota bZ4X recording a highly competitive 14.1 kWh/100km, and the 2024 Tesla Model 3 2WD standing out at an even leaner 13.8 kWh/100km. Rather than abstract claims about performance, these concrete figures translate directly into lower everyday running costs, including reduced charging, servicing, and maintenance expenses. This makes bundling mid-market EVs into a pre-tax salary packaging arrangement a highly effective financial strategy.
This focus on mid-market efficiency is further supported by the New Vehicle Efficiency Standard (NVES), which commenced in 2025. While global trends such as falling battery costs and intensified manufacturer competition are already driving down EV prices, the NVES acts as a powerful additional catalyst in Australia. By enforcing emissions targets that have become significantly stricter in 2026, the legislation prompts carmakers to supply more fuel-efficient options to avoid penalties. This combination of global market forces and local policy ensures that the range of available vehicles in the sub-$75,000 segment will continue to expand.
While the proposed Federal Budget changes reshape the landscape, they do not remove the financial advantages of an EV novated lease; they simply change where the maximum value lies. A crucial element of the proposed transition is “grandfathering.” Under these transitional rules, the government has confirmed that existing leases won’t be impacted by the changes. This means that drivers who establish a novated lease before the new rules take effect can lock in the current, fully exempt FBT conditions for the entire duration of their lease term, regardless of future legislative shifts.
For premium EV buyers looking at vehicles above $75,000, this grandfathering principle makes immediate action critical, as the strongest FBT benefits are only expected to remain available for leases secured before 1 April 2027. Conversely, for value-focused buyers, vehicles in the sub-$75,000 market will retain the full 100% FBT exemption until 1 April 2029, making them highly advantageous when combined with a salary packaging structure that bundles running costs into a single pre-tax payment.
The evolving policy environment signals a clear transition from broad-based EV incentives toward a more structured, value-focused framework. For Australian drivers, the question is no longer whether EV incentives are worthwhile, but rather how to perfectly time your next vehicle purchase and select the right price bracket to lock in the highest possible tax savings.
At Prosperity Smart Drive, we help clients navigate this evolving landscape with clarity and confidence. Get in touch with our team to understand how these proposed changes impact your specific situation and to structure a lease that maximises your available benefits.
