The Australian Government has confirmed significant adjustments to its Electric Vehicle (EV) Fringe Benefits Tax (FBT) exemption, a policy shift set to reshape the landscape of EV affordability for businesses and novated leaseholders from 2027. Announced in early May 2026 by Treasurer Jim Chalmers and Minister for Climate Change and Energy Chris Bowen, the changes aim to make the tax incentive “fairer and more financially sustainable” while encouraging the availability of more affordable EV models in the Australian market.
The existing full FBT exemption will remain in place until March 31, 2027. However, a progressive winding back will commence thereafter, with the full discount becoming more targeted towards lower-priced EVs. This phased approach comes as the government acknowledges the unexpected popularity and escalating cost of the scheme, initially introduced in 2023.
The Three Phases of EV FBT Changes
Australians considering an EV purchase or novated lease need to understand the new three-phase structure:
Phase 1: Status Quo Extended (Until March 31, 2027)
The current full FBT exemption will continue as is until the end of March 2027. This means eligible EVs provided by employers to employees (including via salary packaging) will remain exempt from FBT, provided their value is below the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles, which currently sits at $91,387.
Phase 2: Targeted Discount (April 1, 2027 – March 31, 2029)
From April 1, 2027, the FBT exemption will become more closely targeted by vehicle price. During this two-year period:
- EVs priced at $75,000 or less will continue to receive the full FBT exemption.
- EVs priced between $75,000 and the LCT threshold ($91,387) will be eligible for a reduced 25% FBT discount on their payable FBT.
This adjustment is designed to encourage manufacturers to offer more affordable choices to the Australian market, reflecting the government’s view that EV ownership is becoming more accessible.
Phase 3: Permanent 25% 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 will replace the full exemption, offering a sustained, albeit reduced, tax benefit compared to conventional petrol and diesel vehicles.
“The electric car market has rapidly matured since we came to Government, and these changes will ensure our tax settings are still suitable,” the ministers stated. “There were only two EVs under $40,000 – now there are around 10 and, for the first time, one model under $30,000.”
Why the Change? Balancing Growth and Fiscal Responsibility
The government’s decision to adjust the FBT exemption stems from a statutory review of the Electric Car Discount, which found the scheme’s cost had significantly increased. Initially projected at $90 million, the cost blew out to an estimated $1.35 billion in 2025/26 and was anticipated to reach $3 billion by 2028/29. The phased tightening of the incentive is expected to save the Budget $1.7 billion over five years from 2025-26.
The review also highlighted the success of the policy in stimulating EV uptake, attributing an additional 64,000 EV sales between 2022 and 2025 to the FBT exemption. Minister Bowen noted that 27.5% of light vehicle sales in April 2026 were EVs or plug-in hybrids, a substantial increase from 1.9% in April 2022, indicating a rapidly maturing market.
Impact on Australian EV Buyers and the Market
While the full FBT exemption for higher-priced EVs will be reduced, the government believes the adjustments will continue to support Australia’s transition to electric transport. The policy aims to encourage manufacturers to bring more affordable EVs to the market. Indeed, the availability of budget-friendly EVs has expanded significantly, with models like the BYD Atto 1 (starting below $24,000 before on-road costs) and the GWM Ora 5 (from $33,990 drive-away) now offering new entry points to electric motoring.
Existing novated lease arrangements for eligible EVs will not be impacted by these changes, with current terms being honoured until the end of their lease period. Furthermore, eligible EVs will continue to benefit from an ongoing exemption from import tariffs.
For businesses and individuals considering a move to an EV, especially those utilising salary packaging, the changes underscore the importance of understanding the total cost of ownership over the vehicle’s lifespan. While the FBT benefits are being recalibrated, the broader economic advantages of EVs, such as lower running costs due to reduced fuel reliance and often lower maintenance, remain compelling. For a comprehensive guide on affordable options, refer to our article on the Cheapest Electric Cars Available in Australia in 2026.
This policy adjustment reflects a governmental pivot towards a more sustainable incentive model as the Australian EV market gains momentum. It encourages a focus on accessible electric transport solutions, aligning with national emissions reduction targets. As the market evolves, understanding the nuances of these incentives, alongside other factors like How Much Does an EV Home Charger Cost to Install in Australia in 2026?, will be crucial for making informed purchasing decisions.
Comparison of FBT Exemption Phases for Eligible EVs (Below LCT Threshold)
| Feature | Until March 31, 2027 | April 1, 2027 – March 31, 2029 | From April 1, 2029 Onwards |
|---|---|---|---|
| EV Price | Below $91,387 | Below $75,000 | Below $91,387 (LCT Threshold) |
| FBT Discount | Full Exemption | Full Exemption | 25% Discount on Payable FBT |
| EV Price (Higher Segment) | N/A | $75,000 - $91,387 (LCT Threshold): 25% Discount on Payable FBT | N/A (all eligible EVs receive 25% discount) |
| Existing Leases | Unaffected | Unaffected | Unaffected |
| Import Tariffs | Exempt | Exempt | Exempt |