The Australian Federal Government has confirmed a significant restructure of its Electric Car Discount, impacting the Fringe Benefits Tax (FBT) exemption for electric vehicles (EVs) acquired via novated leases. Announced on May 4, 2026, these changes introduce a phased approach to the popular incentive, aiming to encourage the uptake of more affordable EVs while managing the scheme’s rising cost to the federal budget.
The move comes as Australia’s EV market continues its rapid expansion. April 2026 saw battery electric vehicles achieve a record 16.4% market share of all new car sales, with 15,459 units sold. Notably, Chinese manufacturer BYD surged into the second spot overall, becoming the dominant EV brand for the month, outpacing Tesla.
The Evolution of the Electric Car Discount
Introduced on January 1, 2023 (retrospective to July 1, 2022), the Electric Car Discount has been a key driver in accelerating EV adoption. It exempts eligible EVs provided by employers to employees, including via salary packaging, from FBT. This incentive has been credited with generating approximately 64,000 additional battery EV sales by December 2025.
However, the cost of the scheme has exceeded initial projections, leading to a statutory review announced in December 2025. The government’s decision to restructure the discount is projected to save the Budget AUD $1.7 billion over four years from the 2026-27 financial year, while still supporting the transition to cleaner transport.
Energy Minister Chris Bowen, in a joint statement with Treasurer Jim Chalmers, stated that the new rules are designed to “encourage manufacturers to offer more affordable and cheaper to run EVs in the Australian market.”
Phased Changes to EV FBT Exemption
The restructure will unfold across three distinct phases:
| Phase | Period | Eligibility | FBT Exemption |
|---|---|---|---|
| Phase 1 | Now – March 31, 2027 | EVs below Luxury Car Tax (LCT) threshold (currently AUD $91,387 for 2025-26) | Full exemption |
| Phase 2 | April 1, 2027 – March 31, 2029 | EVs costing AUD $75,000 or less | Full exemption |
| EVs costing AUD $75,000 to LCT threshold | 25% discount on payable FBT | ||
| Phase 3 | From April 1, 2029 onwards | All EVs below LCT threshold | Permanent 25% discount on payable FBT |
Crucially, existing lease arrangements for eligible EVs will be grandfathered and will not be impacted by these changes. Plug-in Hybrid Electric Vehicles (PHEVs) ceased to be eligible for the FBT exemption from April 1, 2025, but continue to be exempt from import tariffs.
“The current New Vehicle Efficiency Standards has seen a dramatic increase in the availability of affordable EV models, and now is the right time to focus the FBT exemption on these cars.” — Joint statement from Treasurer Jim Chalmers and Energy Minister Chris Bowen.
Impact on Australian EV Buyers and the Market
The introduction of a specific AUD $75,000 threshold from April 2027 is a clear signal from the government to the automotive industry to prioritise the supply and pricing of more accessible EV models. This aligns with the ongoing trend of increasing affordability in the Australian EV market, where more than 10 EV models are now available under AUD $40,000, and one under AUD $30,000.
For Australian businesses and individuals considering a novated lease for an EV, the next 11 months present an opportunity to benefit from the full FBT exemption on a wider range of vehicles up to the current LCT threshold of AUD $91,387. After March 2027, buyers seeking the full FBT benefit will need to focus on models priced at or below AUD $75,000. This could further boost sales for popular, more affordable models like the BYD Atto 3 and Dolphin, which have seen strong uptake.
Despite the winding back of the full discount for higher-priced models, Minister Bowen anticipates that EV uptake will remain strong. The Electric Vehicle Council (EVC) has welcomed the decision, with CEO Julie Delvecchio stating that the continuation of the discount means “most electric cars in Australia will remain eligible for the Electric Car Discount, allowing people to save thousands on their annual fuel bills.”
The broader EV market continues to benefit from other federal government initiatives, including ongoing exemptions from import duties for eligible EVs and the implementation of the New Vehicle Efficiency Standard (NVES). These policies, combined with rising fuel prices, are collectively driving consumer interest in electric vehicles. For those looking at budget-friendly options, exploring guides like the Cheapest Electric Cars Available in Australia in 2026 can provide valuable insights. Businesses operating fleets should also consider how these FBT changes integrate with their long-term electrification strategies, alongside planning for charging infrastructure. For example, understanding How to Prepare Your Australian Fleet Depot for Megawatt Electric Truck Charging in 2026: A Complete Guide remains critical.
Outlook for Australian EV Adoption
The government’s recalibrated incentives reflect a maturing EV market in Australia. While the full FBT exemption will eventually be limited, the phased approach provides a clear roadmap for both consumers and manufacturers. The sustained support, albeit adjusted, for EV acquisition through salary packaging, alongside other measures, signals a continued federal commitment to Australia’s electric vehicle transition. This ongoing policy support is expected to further diversify the market and make EV ownership a more accessible option for a broader range of Australians. For homeowners considering the shift, understanding associated costs such as How Much Does an EV Home Charger Cost to Install in Australia 2026? A Guide to Types, Prices & Installation is also an important part of the transition.