The Australian federal government has announced significant adjustments to its Electric Car Discount (ECD), primarily the Fringe Benefits Tax (FBT) exemption for eligible electric vehicles. While the full FBT exemption has been extended for another year, a phased wind-back of the incentive will commence in 2027, impacting the affordability of more expensive EVs for businesses and employees utilising novated leases.
Announced between May 4 and 7, 2026, by Treasurer Jim Chalmers and Energy Minister Chris Bowen, these changes aim to balance the successful acceleration of EV uptake with the scheme’s ballooning cost to the federal budget. The government estimates the current FBT exemption has added approximately 64,000 battery-electric vehicles to Australian roads in the three years to December 2025.
The Evolution of the Electric Car Discount
Introduced at the start of 2023, the Electric Car Discount exempts eligible EVs from FBT when provided by employers to employees, including through salary packaging arrangements. This has offered substantial savings, with the FBT typically amounting to 47%, potentially saving thousands of Australian dollars over a leasing contract. The scheme has been a key driver in Australia’s accelerating EV adoption, particularly for fleet and novated lease buyers, who account for a significant portion of EV sales.
However, the program’s popularity has led to costs far exceeding initial forecasts. Reports indicate the scheme’s cost has grown from an original forecast of $90 million to an estimated $1.35 billion this financial year, prompting the government’s review.
“This decision means most electric cars in Australia will remain eligible for the Electric Car Discount, allowing people to save thousands on their annual fuel bills.”
Key Changes and Timeline
The revised Electric Car Discount will be implemented in three distinct phases:
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Phase 1: Until 31 March 2027: The current full FBT exemption will remain in place for eligible EVs. This applies to vehicles priced below the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles, which is currently set at AUD $91,387.
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Phase 2: 1 April 2027 to 31 March 2029: The full FBT exemption will only apply to EVs costing AUD $75,000 or less. Vehicles priced between AUD $75,001 and the LCT threshold (currently AUD $91,387) will receive a 25% discount on their payable FBT.
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Phase 3: From 1 April 2029 onwards: All eligible EVs priced below the LCT threshold will receive a 25% discount on payable FBT, rather than a full exemption.
These changes are projected to save the government AUD $1.7 billion over five years from 2025–26. Importantly, existing novated leases will not be affected by these changes, and the permanent exemption from import tariffs for eligible EVs will also be maintained.
Impact on Australian EV Buyers and the Market
The government’s rationale behind these adjustments is to encourage manufacturers to offer more affordable EVs in the Australian market and ensure the incentive is more financially sustainable. This move comes as EV sales in Australia continue to surge. In April 2026, battery-electric cars accounted for a record 16.4% of new car sales, up 157% year-on-year. This translates to 15,459 electric vehicles sold in April alone.
| Incentive Phase | Eligibility | FBT Exemption/Discount |
|---|---|---|
| Until 31 March 2027 | EVs below AUD $91,387 LCT threshold | Full exemption |
| 1 April 2027 - 31 March 2029 | EVs up to AUD $75,000 | Full exemption |
| EVs between AUD $75,001 and AUD $91,387 LCT threshold | 25% FBT discount | |
| From 1 April 2029 | All EVs below AUD $91,387 LCT threshold | 25% FBT discount |
Industry bodies have largely welcomed the extension, albeit with recognition of the need for long-term fiscal responsibility. Rohan Martin, CEO of the National Automotive Leasing and Salary Packaging Association (NALSPA), stated the approach strikes a balance between cost-of-living relief and market certainty. Similarly, Electric Vehicle Council (EVC) Chief Executive Julie Delvecchio highlighted that the decision provides a clear pathway for Australians to transition away from petrol costs.
For those considering an electric vehicle, particularly through a novated lease, the immediate future still offers the full FBT exemption for eligible models. However, prospective buyers of higher-priced EVs should factor in the upcoming changes from April 2027. This adjustment may further drive demand for more affordable models, potentially boosting sales for vehicles like the BYD Atto 3 or upcoming entrants in the sub-AUD $75,000 category. For information on current affordable options, refer to our guide on the Cheapest Electric Cars Available in Australia in 2026.
As Australia’s EV market matures, policy shifts like these are anticipated to ensure sustainable growth and broader accessibility. While the direct FBT exemption will be scaled back, the government’s continued focus on reducing transport emissions means other forms of support, such as investments in charging infrastructure, are likely to remain crucial. Understanding these evolving incentives is vital for both individual consumers and businesses looking to electrify their fleets. Businesses preparing for larger-scale electrification might also find our guide on How to Prepare Your Australian Fleet Depot for Megawatt Electric Truck Charging in 2026: A Complete Guide useful.
This policy adjustment underscores the dynamic nature of Australia’s transition to a low-emissions transport future, where government incentives play a critical role in shaping market trends and consumer choices. For homeowners looking to reduce their overall energy expenditure, strategies to manage electricity bills are increasingly important, especially as winter approaches. Our article on How to Cut Your Electricity Bill This Winter in Australia 2026: Strategies After Federal Rebates End offers practical advice.