ATO Updates Guidance on Phased Electric Car Discount Changes

The Australian Taxation Office has updated its guidance on the electric car discount, detailing how the fringe benefits tax rules are slated to transition following proposed government reforms.

While the legislation introduced into Parliament is yet to be passed into law, the updated guidance outlines how the transition will be administered for employers and novated lease drivers across the next several years.

How the phased wind-back will work

Under the outlined framework, the full 100 per cent fringe benefits tax exemption remains unchanged until 31 March 2027 for eligible zero-emission vehicles priced below the fuel-efficient luxury car tax threshold, which currently sits at $91,661.

Between 1 April 2027 and 31 March 2029, a two-tiered system is scheduled to take effect:

• Electric cars priced at $75,000 or less: These vehicles will continue to receive the full 100 per cent FBT discount via a zero per cent statutory formula rate.
• Electric cars between $75,000 and the luxury car tax threshold: Drivers will receive a partial 25 per cent discount on payable FBT, implemented using a 15 per cent statutory formula rate.

From 1 April 2029 onwards, the transitional tier ends, and all qualifying electric cars below the luxury car tax threshold will receive an ongoing 25 per cent discount on payable FBT.

Importantly, the tax office has confirmed that existing lease commitments entered into prior to the cut-off dates will not be impacted, preserving the full exemption for agreements established under the current rules.

What this means for your novated lease

For Australian employees weighing up a novated lease today, the update provides welcome clarity on the roadmap ahead.

First, there is no immediate rush or disruption to leases taken out right now. Anyone setting up a novated lease on an eligible electric vehicle before 1 April 2027 can secure the full 100 per cent FBT exemption for the entire term of that agreement under the proposed grandfathering rules.

Second, if you are looking at premium electric models priced above $75,000, establishing your lease before April 2027 is essential to maximise tax savings. After that threshold date, higher-priced models will lose the full exemption and move to a reduced 25 per cent discount on payable tax.

Finally, the rules reinforce that affordable EVs priced under $75,000 remain the sweet spot for salary packaging. These vehicles will retain a complete tax exemption through to 2029, keeping running costs and pre-tax deductions highly competitive.