The Albanese Government’s 2026 Federal Budget, handed down on May 12, 2026, has confirmed significant shifts to Australia’s Electric Vehicle (EV) Fringe Benefits Tax (FBT) exemption scheme. While current arrangements offering full FBT exemption for eligible zero and low-emission vehicles will remain in place until March 31, 2027, a phased wind-back will introduce a $75,000 vehicle price cap for full exemption from April 1, 2027, before transitioning to a permanent 25% FBT discount for all eligible EVs under the Luxury Car Tax (LCT) threshold from April 1, 2029.
This policy recalibration signals the government’s view that Australia’s EV market is maturing, reducing the need for the aggressive incentives initially introduced in 2022. The changes are projected to recover approximately $1.9 billion in foregone revenue over five years, addressing concerns about the scheme’s escalating cost, which reportedly exceeded initial forecasts by nearly 13 times.
Phased Changes to the EV FBT Exemption
The original Electric Car Discount, enacted in 2022, provided a full FBT exemption for eligible battery electric vehicles (BEVs) and hydrogen fuel cell vehicles (FCEVs) when provided through a novated lease. This exemption has been a key driver in making EVs more accessible, particularly for salary sacrificing arrangements, helping to put over 100,000 electric vehicles on Australian roads.
However, the 2026 Budget outlines a clear, three-phase transition:
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Phase 1: Current Settings Maintained (Now until March 31, 2027) During this period, the full FBT exemption continues for eligible EVs priced below the current fuel-efficient Luxury Car Tax (LCT) threshold, which stands at $91,387 for the 2025/26 financial year. Plug-in Hybrid Electric Vehicles (PHEVs) ceased to be eligible for the exemption from April 1, 2025, unless under a pre-existing lease agreement.
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Phase 2: Targeted Exemption (April 1, 2027, to March 31, 2029) From this date, the full FBT exemption will only apply to eligible electric vehicles with a purchase price below $75,000 before on-road costs. EVs priced between $75,000 and the LCT threshold of $91,387 will instead qualify for a reduced 25% FBT discount. This move aims to encourage manufacturers to offer more affordable battery-electric models in the Australian market.
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Phase 3: Permanent 25% Discount (From April 1, 2029) In the final phase, a permanent 25% FBT discount will apply to all eligible electric vehicles priced below the LCT threshold. This structure is intended to provide ongoing, sustainable support for EV uptake while reflecting the increasing affordability and market penetration of electric models.
Existing novated lease arrangements for EVs will be honoured for the entire duration of their lease, meaning those who secured an FBT-exempt vehicle before these changes take full effect will retain their current benefits.
Impact on Australian EV Buyers and Fleets
These changes will primarily affect buyers considering higher-priced EVs through novated leases or company car schemes. While the full exemption has significantly reduced the cost of ownership for many, the new thresholds mean that premium models, such as certain variants of the Tesla Model Y or Kia EV6, may no longer receive the same level of tax benefit from April 2027. For those looking to maximise their FBT savings, there will be an increased incentive to opt for EVs priced under $75,000.
“The continuation, but gradual recalibration, of the Electric Car Discount suggests the government believes the EV market is now maturing. The policy has played an important role in stimulating the market,” said Hussein Dia, a professor of transport technology and sustainability at Swinburne University of Technology.
For businesses managing fleets, the evolving FBT landscape will necessitate a review of procurement strategies. While the 25% FBT discount from 2029 still offers a considerable advantage over internal combustion engine (ICE) vehicles, the shift from a full exemption requires careful financial modelling. Businesses aiming to electrify their fleets, especially with more premium models, may need to adjust their budgets accordingly.
For consumers, understanding the new price points and timelines is crucial for planning an EV purchase. The current period until March 31, 2027, represents the last window for securing a full FBT exemption on EVs up to $91,387. For a comprehensive overview of entry-level options, refer to our guide on the Cheapest Electric Cars Available in Australia in 2026.
Federal Budget’s Broader EV Strategy
Beyond the FBT adjustments, the 2026 Federal Budget also committed $40 million over four years to accelerate the rollout of kerbside and regional EV charging infrastructure across Australia. This investment aims to address one of the primary barriers to broader EV adoption: accessible and reliable charging outside major urban centres and for apartment residents without off-street parking. This complements existing state-level initiatives, such as the NSW government’s $100 million EV strategy, which focuses on similar charging expansion.
As Australia’s EV market continues its rapid growth—with electric vehicles accounting for a record 16.4 per cent of new-car deliveries in April 2026—the government’s refined approach to incentives aims to foster sustained growth while ensuring fiscal responsibility. For more on managing charging costs, read our guide on Public EV Charging Costs Australia 2026: Save Up To $0.50/kWh On The Road.
Summary of EV FBT Exemption Changes
| Period | Eligible EV Price (before ORCs) | FBT Exemption/Discount |
|---|---|---|
| Until 31 March 2027 | Up to $91,387 (LCT Threshold) | Full Exemption |
| 1 April 2027 - 31 March 2029 | Up to $75,000 | Full Exemption |
| $75,001 - $91,387 | 25% Discount | |
| From 1 April 2029 | Up to $91,387 (LCT Threshold) | 25% Discount |
Note: PHEVs lost eligibility for new arrangements from April 1, 2025. Existing arrangements are grandfathered.