EV FBT exemption to phase out from April 2027

The Australian Government has announced phased changes to the Fringe Benefits Tax (FBT) exemption for eligible electric vehicles, following the Statutory Review of the Electric Car Discount. The changes are structured across three stages, with meaningful lead time before each phase takes effect. Draft legislation is expected to clarify transitional rules and the precise scope of grandfathering.

Until 31 March 2027, nothing changes. Eligible battery electric vehicles (BEVs) and hydrogen fuel cell vehicles below the fuel-efficient luxury car tax threshold ($91,387 for 2025–26) continue to receive a full FBT exemption under novated lease and salary packaging arrangements. This means 100% of the lease cost can come from pre-tax salary with no Employee Contribution Method (ECM) post-tax component.

From 1 April 2027 to 31 March 2029, a new $75,000 price cap applies. EVs at or below $75,000 retain the full exemption on new arrangements. Vehicles priced between $75,001 and the LCT threshold receive a 25% FBT discount instead of full exemption — requiring a post-tax ECM component for the first time on mid-range EVs like higher-spec Tesla Model Y or BMW i4 variants.

From 1 April 2029, the full exemption ends for all new arrangements. Eligible EVs below the LCT threshold will receive a permanent 25% FBT discount. Vehicles above the LCT threshold remain fully FBT-applicable, as they always have been. The 25% discount still provides a meaningful advantage over petrol vehicles, but the headline benefit is substantially reduced.

Critically, the Government has confirmed that existing novated leases are grandfathered. If your lease commenced before the relevant phase start date, the new rules do not apply for the life of that agreement — regardless of whether the lease ends after 2027 or 2029. This creates a clear incentive to enter arrangements before each deadline.

Plug-in hybrid electric vehicles (PHEVs) are no longer eligible for the exemption on new arrangements from 1 April 2025, unless a financially binding commitment was in place before that date. Optional lease extensions exercisable after April 2025 do not qualify as binding commitments.

For employees considering an EV novated lease, the practical advice is: if an EV is on your radar and your employer supports salary packaging, entering before 31 March 2027 locks in the strongest tax treatment for the full lease term. Use our calculator to model the difference between EV and petrol packaging for your salary.