Legislation Introduced to Enact Phased Wind-Back of Electric Car FBT Exemption

The federal government has formally introduced legislation to Parliament setting out the future of Australia's electric vehicle tax concessions, turning previously announced budget measures into a legislative timetable.

Under Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 4) Bill 2026, the current full fringe benefits tax (FBT) exemption on eligible zero-emissions vehicles will transition into a more targeted discount structure over the next three years. The legislation passed its third reading in the House of Representatives late last week and is now set to face the Senate.

How the rules will change

The draft laws confirm the framework initially outlined after Treasury reviewed the Electric Car Discount scheme. Under the current rules, all eligible pure electric cars priced below the luxury car tax threshold for fuel-efficient vehicles—which sits at $91,661 for the 2026–27 financial year—qualify for a total exemption from FBT.

If passed, the bill will lock in a phased transition:

• Until 31 March 2027: The complete 100 per cent FBT exemption stays in place for all eligible battery electric vehicles priced beneath the fuel-efficient luxury car tax threshold.
• From 1 April 2027 to 31 March 2029: A two-tier system takes effect. EVs valued at $75,000 or less will retain the full FBT exemption. Vehicles priced between $75,000 and the luxury car tax threshold will transition to a 25 per cent discount on the standard FBT calculation.
• From 1 April 2029: The full exemption will end for newly initiated arrangements. All eligible electric vehicles priced below the luxury car tax threshold will instead receive a ongoing 25 per cent discount on the standard statutory formula rate.

Crucially, the legislation includes grandfathering provisions. Novated leases entered into while earlier rules apply will retain their concessional tax treatment for the duration of that lease agreement.

What this means for your novated lease

If you are currently paying off an electric vehicle through a salary packaging arrangement, or planning to take one up soon, the introduction of this bill brings welcome clarity to your timeline.

For existing leaseholders, nothing changes. The grandfathering provisions ensure that commitments made under the original settings remain sheltered under the full exemption until your current contract concludes.

For anyone planning a new lease, the most significant deadline is 1 April 2027. If you are targeting a higher-end electric model priced between $75,000 and $91,661, establishing and taking delivery of your novated lease before that date is essential to lock in four or five years of zero FBT.

Drivers shopping for models priced below $75,000 face much less pressure, as that price bracket keeps the 100 per cent exemption right through to early 2029. However, with vehicle delivery lead times often spanning several months, anyone wanting to maximise their tax savings should begin exploring vehicle availability and lease terms well ahead of legislative milestones.