The Australian federal government has announced a significant recalibration of its Electric Car Discount (ECD) scheme, confirming a phased wind-back of the full Fringe Benefits Tax (FBT) exemption for electric vehicles (EVs) from April 2027. The move, detailed in a joint statement by Treasurer Jim Chalmers and Energy Minister Chris Bowen on May 5, 2026, aims to focus incentives on more affordable models as Australia’s EV market matures.
Currently, the ECD offers a full FBT exemption for eligible EVs priced below the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles, which stands at AUD$91,387 for the 2025-26 financial year. This has provided substantial savings for individuals and businesses utilising novated leases for EV purchases.
“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.” — Treasurer Jim Chalmers and Energy Minister Chris Bowen
Under the revised scheme, the full FBT exemption will continue as is until March 31, 2027. This provides a window for prospective EV buyers to leverage the existing full benefits.
Phased Changes to Incentivise Affordability
The changes will be implemented in three distinct phases, reflecting the government’s assessment of the burgeoning EV market and its commitment to fiscal sustainability. The government estimates these adjustments will save the budget AUD$1.7 billion over the five years from 2025-26.
Phase 1: Continuation of Current Settings (Until March 31, 2027)
Until the end of March 2027, the existing full FBT exemption will apply to all eligible EVs below the current LCT threshold of AUD$91,387. This means buyers can continue to benefit from significant tax savings when acquiring an EV through a novated lease.
Phase 2: Targeted Support for Affordable EVs (April 1, 2027 – March 31, 2029)
From April 1, 2027, the full FBT exemption will be limited to EVs with a purchase price of AUD$75,000 or less. Vehicles priced between AUD$75,000 and the LCT threshold (currently AUD$91,387) will instead receive a reduced 25% FBT discount. This threshold aims to encourage manufacturers to introduce and promote more competitively priced EVs in the Australian market.
Phase 3: Permanent 25% FBT Discount (From April 1, 2029 Onwards)
From April 1, 2029, a permanent 25% FBT discount will apply to all eligible EVs priced below the LCT threshold. This enduring, albeit reduced, incentive underscores the government’s long-term support for EV adoption while acknowledging the increased affordability and availability of electric models.
Importantly, the government has confirmed that all existing novated lease arrangements will be honoured until the end of their lease period, ensuring no retrospective impact on current EV owners. Additionally, the exemption from import duties for eligible EVs will continue on an ongoing basis.
Market Context and Impact
The policy adjustments come amidst a rapid acceleration of EV adoption in Australia. In April 2026, battery-electric vehicles (BEVs) accounted for a record 16.4% of all new car sales, up significantly from 6.6% in April 2025. This surge is attributed to improving supply, rising fuel prices, and a wider range of available models. Energy Minister Chris Bowen highlighted that in April 2026, 27.5% of light vehicle sales were EVs or plug-in hybrids, a substantial increase from 1.9% in April 2022.
The market has seen a dramatic increase in affordable EV options. When the government introduced the ECD, there were only two EVs available under AUD$40,000. Today, there are approximately 10 models in this price bracket, with at least one model, the BYD Dolphin Essential, retailing for under AUD$30,000.
This evolving landscape allows the government to refine its incentives to be more targeted and fiscally responsible. The shift aims to sustain momentum in EV uptake, particularly for models that are becoming accessible to a broader segment of the Australian population. For those considering the switch, understanding the various incentives and the total cost of ownership, including home charging, remains crucial. You can find more information on the Cheapest Electric Cars Available in Australia in 2026 and explore guides such as How Much Does an EV Home Charger Cost to Install in Australia 2026? A Guide to Types, Prices & Installation.
While the full FBT exemption will eventually be phased back for higher-priced models, the continued support for EVs below the AUD$75,000 threshold and the permanent 25% discount underscore Australia’s commitment to its electric vehicle transition. This policy framework seeks to balance market stimulation with long-term financial sustainability, encouraging a diverse and affordable EV market for all Australians.
Comparison of EV Tax Discount Phases
| Feature | Current (Until 31 March 2027) | Phase 2 (1 April 2027 – 31 March 2029) | Phase 3 (From 1 April 2029) |
|---|---|---|---|
| Eligible EV Price | Below LCT Threshold (~AUD$91,387) | Below AUD$75,000 | Below LCT Threshold (~AUD$91,387) |
| FBT Exemption | Full Exemption | Full Exemption | 25% Discount |
| FBT Discount (AUD$75k-LCT) | Full Exemption | 25% Discount | 25% Discount |
| Existing Leases | Unaffected | Unaffected | Unaffected |
| Import Duties | Exempt | Exempt | Exempt |