Australia’s electric vehicle (EV) tax incentives are set to change, with the Federal Government proposing a gradual transition from the current fringe benefits tax (FBT) exemption to a permanent 25% discount. The changes are intended to maintain support for more affordable electric cars while adjusting the long-term cost of the concession to the Federal Budget.
The Australian Treasury’s consultation on the proposed changes closed on 28 September 2026, following the Government’s announcement in the 2026–27 Federal Budget. The reforms would affect eligible electric cars provided through employer arrangements, including novated leases, and are expected to be introduced in stages beginning in April 2027.
What is changing?
The current Electric Car Discount provides an FBT exemption for eligible battery electric vehicles that meet the relevant conditions, including the applicable luxury car tax threshold. This can reduce the tax cost of providing an eligible vehicle to an employee for private use, including through certain novated leasing arrangements.
Under the proposed changes, the full exemption would gradually be replaced by a 25% FBT discount. The transition would be based on the vehicle’s value and the date the vehicle arrangement begins.
The proposed changes are:
- Until 31 March 2027: The existing FBT exemption continues to apply to eligible electric cars under the current rules.
- From 1 April 2027: Eligible electric cars valued at $75,000 or less can continue to receive the full FBT exemption, provided the vehicle arrangement meets the transitional requirements. Eligible vehicles valued above $75,000 and below the fuel-efficient luxury car tax threshold would receive a 25% FBT discount.
- From 1 April 2029: The 25% FBT discount would apply to all eligible electric cars below the fuel-efficient luxury car tax threshold. Vehicles valued at $75,000 or less would retain the full exemption only where the relevant vehicle commitment was made before 1 April 2029.
The proposed arrangements apply to eligible electric cars, rather than all vehicles with some form of electrification. Plug-in hybrid electric vehicles (PHEVs) have generally been excluded from the FBT exemption for new arrangements since 1 April 2025, subject to transitional provisions.
What this means for EV buyers and novated leases
The FBT concession can make eligible EVs more affordable when they are provided by an employer or acquired through an eligible novated lease. Under these arrangements, the employer provides the vehicle as a fringe benefit, and the applicable FBT treatment can affect the overall cost of the package.
As the rules change, employees considering a novated lease or employer-provided EV may need to pay closer attention to the vehicle’s value, the timing of their agreement and whether it meets the eligibility requirements. The change does not represent a direct 25% discount on the purchase price of an electric vehicle. Instead, it changes the FBT treatment used to calculate the tax payable on the vehicle benefit.
The Government has stated that existing leases will not be affected by the changes. However, people considering a new arrangement should check the specific transitional rules and seek advice from their employer, leasing provider or tax professional before making a decision.
Why the Government is changing the concession
The Government’s stated aim is to keep support for EV uptake while making the concession more targeted and fiscally sustainable. In its May 2026 announcement, the Government pointed to the wider availability of more affordable electric vehicles in Australia and the growth of the EV market since the discount was introduced in 2022.
The Government estimates the changes will save the Budget $1.7 billion over the five years from 2025–26. The statutory review of the Electric Car Discount also considered the policy’s effects on EV uptake, emissions and vehicle affordability.
The proposed transition has implications for employees, employers, fleet operators and businesses offering novated leasing. While the full exemption would continue for qualifying lower-priced vehicles under the transitional arrangements, the move to a 25% discount would change the tax treatment for eligible higher-priced EVs from April 2027 and for all eligible EVs from April 2029.
With the Treasury consultation now closed, the proposed changes mark an important development in Australia’s EV finance landscape. Buyers and businesses considering an electric vehicle arrangement should keep up to date with the final legislation and eligibility requirements as the transition approaches.
Sources:
- Australian Treasury, Sustainable fringe benefits tax treatment of electric cars, consultation closed 28 September 2026.
- Treasury Ministers, Fairer tax treatment to encourage affordable EVs, 5 May 2026.
- Australian Government, Budget 2026–27 Overview.
- Australian Treasury, Statutory Review of the Electric Car Discount, 2026.
