The Australian Government’s 2026 Federal Budget, handed down in May 2026, has confirmed significant changes to the Electric Car Discount (Fringe Benefits Tax exemption), introducing a phased reduction for higher-priced electric vehicles (EVs) from April 2027. This shift signals a recalibration of government incentives, moving towards a more targeted approach as EV adoption continues to accelerate across the nation.
Under the existing scheme, eligible zero-emission vehicles (Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles) provided through a novated lease have been fully exempt from Fringe Benefits Tax (FBT), a measure credited with supporting the uptake of over 100,000 EVs since its introduction in 2022.
However, a review of the program, citing higher-than-expected costs, has led to a three-phase adjustment:
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Phase 1: Current Settings Maintained (until March 31, 2027) For arrangements commencing before April 1, 2027, eligible EVs up to the Luxury Car Tax (LCT) threshold (currently $91,387 for fuel-efficient vehicles) will continue to receive a full FBT exemption.
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Phase 2: Partial Exemption for Pricier EVs (from April 1, 2027) From this date, EVs priced below $75,000 will retain the full FBT exemption. However, vehicles priced between $75,000 and the LCT threshold ($91,387) will be eligible for a reduced 25% FBT discount. This aims to encourage manufacturers to offer more affordable EVs.
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Phase 3: Standardised Discount (from April 1, 2029) From April 1, 2029, a 25% FBT discount will apply to all eligible electric vehicles priced below the LCT threshold, becoming the permanent policy. Importantly, all existing novated lease arrangements established before these phase-out dates will be honoured until the end of their lease period.
“Keeping the Discount means more people can continue to access the $3000 annual savings from lower fuel and maintenance bills by switching to an EV.” – Julie Delvecchio, CEO, Electric Vehicle Council
This policy evolution reflects the government’s view that EV ownership is becoming increasingly affordable, while still supporting Australia’s transition to electric transport as part of broader emissions targets. The changes are expected to recover approximately $1.9 billion over five years.
Impact on Australian EV Buyers
The immediate impact for Australians considering an EV purchase via a novated lease is a window of opportunity until April 2027 to secure the full FBT exemption on a broader range of vehicles. After this, buyers of EVs exceeding $75,000 will see a reduction in their potential tax savings. This could influence purchasing decisions, potentially driving demand for more affordable EV models or encouraging earlier adoption of higher-priced vehicles.
For instance, models such as the Tesla Model Y Long Range, which recently commenced Australian deliveries at AU$74,900 before on-road costs, will remain fully FBT-exempt if acquired before April 2027. However, a future variant exceeding the $75,000 threshold could fall into the 25% discount bracket after this date. This also applies to popular models like the BYD Atto 3, which starts below $45,000 and would continue to benefit from the full exemption.
Broader EV Market Context
The policy adjustments come at a time of unprecedented growth in the Australian EV market. In April 2026, battery electric vehicles accounted for a record 16.4 per cent of all new vehicle sales, or approximately one in every six vehicles sold. When including plug-in hybrids, electrified vehicles represented almost 27% of the market. This surge is partly attributed to increased supply, rising fuel prices (petrol at $2.50 a litre in some areas), and existing government incentives.
Manufacturers are responding with new models and competitive pricing. Subaru, for example, recently opened pre-orders for its new all-electric Uncharted SUV, priced from $59,990 before on-road costs, while also implementing price cuts of up to $4,000 on its Solterra and Trailseeker EV ranges. Kia also launched its PV5 Cargo electric van in May 2026, starting from $55,990 before on-road costs, expanding options for commercial EV buyers.
Beyond purchase incentives, the Federal Budget also committed $40 million over four years to expand kerbside and regional EV charging infrastructure, alongside $15.4 million to support dealerships and repairers in adapting to electrified vehicles. This ongoing investment in infrastructure is crucial for addressing range anxiety and supporting long-distance travel. For those looking to manage their charging costs, understanding different tariffs and smart charging strategies remains vital, whether at home or on the road. For more on optimising your charging, see our guide on How to Slash Your Home EV Charging Costs in Australia 2026: Optimising with Solar, Off-Peak Tariffs & Smart Charging and Public EV Charging Costs Australia 2026: Save Up To $0.50/kWh On The Road.
Comparison of FBT Exemption Phases
| Feature | Current (until 31 March 2027) | Phase 2 (1 April 2027 - 31 March 2029) | Phase 3 (from 1 April 2029) |
|---|---|---|---|
| Eligible EV Price | Up to LCT threshold (~$91,387) | Below $75,000 (Full Exemption) | Below LCT threshold (~$91,387) |
| $75,000 - LCT threshold (25% FBT Discount) | |||
| FBT Exemption Level | Full (0% FBT) | Full (0% FBT) for EVs < $75,000 | 25% FBT Discount for all eligible EVs |
| 25% Discount for EVs $75,000 - LCT threshold | |||
| Existing Arrangements | Honoured for life of lease if commenced before 1 April 2027 | Honoured for life of lease if commenced before 1 April 2027 or 2029 as per price tier | Honoured for life of lease if commenced before 1 April 2029 |
This budget announcement marks a maturing phase for Australia’s EV policy, moving from broad-brush incentives to a more nuanced approach that aims to sustain growth while managing fiscal responsibilities. Consumers and businesses considering an EV in the near future should factor these upcoming changes into their financial planning.