House Passes Bill to Reshape Electric Car FBT Exemption

The federal government's planned reforms to the electric car fringe benefits tax (FBT) exemption have moved a step closer to reality, with the Treasury Laws Amendment (Tax Reform No. 4) Bill 2026 clearing the House of Representatives.

The legislation, which now heads to the Senate, sets out a phased restructuring of the Electric Car Discount that has driven strong salary packaging demand since 2022. While the current 100 per cent exemption remains in effect for now, the new rules outline a transition toward a lower ongoing discount and a tighter price ceiling.

How the phased wind-back works

Under the framework outlined in the bill, the existing full FBT exemption will continue untouched for all eligible electric vehicles priced below the fuel-efficient luxury car tax threshold until 31 March 2027.

Starting from 1 April 2027, the exemption will split into two tiers:

• Electric cars priced at $75,000 or below will retain the full 100 per cent FBT exemption during a two-year transition period ending on 31 March 2029.
• Electric cars priced between $75,000 and the luxury car tax threshold will see their benefit reduced to a 25 per cent discount on payable FBT, applied through a 15 per cent statutory formula rate.

From 1 April 2029, the full exemption is set to end entirely. From that point forward, all qualifying electric vehicles below the luxury car tax threshold will receive the ongoing 25 per cent FBT discount.

The legislation confirms that existing leases will be grandfathered, meaning active agreements signed before the cut-off dates will retain their agreed tax treatment for the remainder of their term.

Current status of the reform

While the bill has successfully cleared the lower house, the Australian Taxation Office has reiterated that the changes are not yet law. The measure still requires the endorsement of the Senate before receiving Royal Assent. Until that legislative process is complete, existing FBT rules and thresholds remain fully operative.

What this means for your novated lease

If you are currently evaluating an EV novated lease or already driving one, here is what these developments mean for your pocket:

• Existing agreements remain protected: If you already salary package an EV under the current rules, your arrangements are safe. The proposed changes do not retrospectively remove the full exemption on active leases.
• Higher-spec EVs have a clear timetable: Employees looking at vehicles priced between $75,000 and the luxury car tax threshold—such as higher-grade models from Tesla, Polestar or German luxury marques—stand to lose the most from April 2027. Locking in a lease before that date protects the full exemption for up to five years.
• Mass-market EVs get more runway: Anyone shopping for entry-level or mid-range models priced under $75,000 will continue to enjoy the full 100 per cent exemption through to early 2029 under the proposed timeline.
• Watch out for lease refinances: Extending or refinancing an agreement after the cut-off dates, or switching to a new employer, may be treated as entering into a new contract under the incoming rules, potentially triggering the reduced concessional rate.