The Government has announced that the FBT concession on EVs will be progressively reduced. This change is a response to the recommendations made in the Statutory Review of the Electric Car Discount, which was released in May 2026. The change will continue to encourage the adoption of EVs and to ensure that the tax concessions remain financially sustainable and well-directed. It is expected that these changes may save the budget around $1.7 billion over five years (2025-26 to 2029-30). Remember that nothing changes overnight. The current full FBT exemption for eligible EVs continues until 31 March 2027.
Three-Phase Transition
Phase 1 – Now until 31 March 2027
- Current rules remain fully in place.
- EVs under the Luxury Car Tax (LCT) threshold (around $91,387 for fuel-efficient vehicles in 2025-26) still get a full FBT exemption.
- Businesses and employees using novated leases or salary packaging don’t need to make any changes during this period.
Phase 2 – 1 April 2027 to 31 March 2029
- Phase out approach at lower-priced EVs.
- EV $75K and less: Still eligible for FBT exemption.
- EV above $75K and below the LCT threshold: FBT is reduced by 25% when determining liability.
- This phase encourages suppliers to provide affordable EVs.
Phase 3 – From 1 April 2029
- All eligible EVs below the LCT threshold get a flat 25% off on FBT irrespective of the price.
- Existing import duty waiver for eligible EVs continues.
Grandfathering of Existing Leases
- Existing EV leases will not be affected by the new rules.
- The details of this will be included in draft legislation, and existing arrangements will be able to qualify for the current FBT exemption.
What This Means for Businesses and Employees
The FBT exemption has significantly driven the purchase of EVs, especially via the novated lease arrangement, enabling employees to access vehicles using their pre-tax salary. The Review determined the exemption:
- Added around 64,000 battery EVs in the first three years
- Reduced emissions and improved fuel savings
- Increased EV adoption across cities, regional, and suburban areas
However, the Review also found:
- Higher-income employees benefited more
- Costs to the Budget were growing rapidly
The phased approach now balances continued support for affordable EVs with long-term budget sustainability.
Practical Considerations for Businesses and Individuals
- Act before 31 March 2027:
- For those considering a novated lease or a salary packaged EV, locking in agreements before the full waiver expires may be prudent.
- Review fleet and salary packaging models:
- EVs priced below $75,000 still an excellent proposition from 2027 onward.
- Review Total Cost of Ownership (including FBT, running costs and charging facilities) for business fleets.
- Second-hand EVs:
- The rise of the used EV market could offer cheaper alternatives when new vehicles face tighter constraints.
The uptake of EVs is also rapidly increasing, with EV/PHEV sales comprising 22.9% of new cars in March 2026 (vs. 1.8% in May 2022), and increasingly more models entering the $30k-40k price point.
Next Steps
These reforms continue to support cleaner transport while narrowing the focus of tax concessions. If you are considering obtaining an EV—personally or for your business—or want to understand the impact on salary packaging or fleet costs, you need expert advice to help you predict outcomes and plan the best timing.