EV FBT exemption — demystified

Does this affect me?

If you're not salary-packaging or novated-leasing a car through your employer — no, this won't touch you. If you are (or want to) — yes, the rules are tapering. Under-$75k EVs keep the full freebie until April 2029, then drop to a 25% discount. Over-$75k EVs drop to a 25% discount from April 2027.

Quick test:

• Buying an EV with cash for personal use? No FBT in the first place — these changes don't apply to you.
• Salary-packaging an EV under $75k via a novated lease? Full exemption still available through to 1 April 2029.
• Already have a novated lease on an EV? Grandfathered at the rate locked in when the lease started.
• Looking at an EV over $75k? From 1 April 2027 you get a 25% discount, not the full exemption.
• Considering a plug-in hybrid (PHEV)? No EV concession — treated as a regular car.

TL;DR

The EV FBT exemption (in since 2022) stays in full for EVs under $75,000 in 2026-27. From 1 April 2027, EVs over $75,000 drop to a 25% discount — no more full exemption. From 1 April 2029, even the under-$75k crowd shifts to a 25% permanent discount, not the full freebie.

Existing salary-packaged EVs keep the FBT rate locked in when the lease started (grandfathered). Plug-in hybrids do not qualify — they're treated as regular cars under the standard FBT rules.

Jargon decoder:

• FBT (Fringe Benefits Tax) = a tax employers pay when they give staff a non-cash perk (like a car for private use). Without an exemption, FBT makes salary-packaging a car expensive.
• Novated lease / salary packaging = your employer leases the car for you, payments come out of your pre-tax salary, so your taxable income drops.
• FELCT = Fuel-Efficient Luxury Car Tax threshold — the price line that decides whether your EV is "under" or "over" the cap. It's indexed each year (currently ~$75k).
• PHEV = plug-in hybrid (battery + petrol engine). Not classed as an EV for these rules.
• Grandfathered = the rules that applied when you signed your lease keep applying for the life of that lease.

What's NOT changing

What IS changing — the taper schedule

Two things worth flagging:

1. The thresholds are hard cutoffs, not a sliding scale. A $74,999 EV in 2027 is fully exempt; a $75,001 EV gets the 25% discount. (Round numbers above; the actual threshold is the FELCT — Fuel-Efficient Luxury Car Tax — figure, which is indexed.)
2. Plug-in hybrids (PHEVs) are treated as regular cars — no EV exemption, no discount. Standard 20% FBT statutory rate applies.

Key dates

How salary packaging an EV actually saves money

A typical $65,000 EV on a novated lease:

The exemption is what makes EV salary packaging way cheaper than a petrol equivalent on the same income. The ATO's electric cars FBT guide lives at ato.gov.au/fbt-electric-cars — it'll publish the current FELCT figure each year.

Worked example — Maya, grad on $75k, packages a new EV in 2026-27

• Vehicle cost: $65,000 (under threshold).
• 5-year novated lease.
• Annual tax saving from FBT exemption: ~$4,700/yr at her marginal rate.
• Total saving over the lease: ~$23,500.
• HELP debt: Maya's repayments reduce because the lease payment is pre-tax (her HELP repayment income is lower).

Worked example — Henry, surgeon, packages a $95k EV in 2027

• Vehicle over the $75,000 threshold.
• From 1 April 2027: 25% discount instead of full exemption.
• Effective tax saving roughly halves compared with the under-threshold case.
• Salary packages signed before 1 April 2027 are grandfathered at the rate locked in at signing.

Worked example — existing arrangement

Tahlia signed a 5-year EV novated lease in February 2026 (full exemption era).

• From 1 April 2027, even though new packages on over-$75k cars lose the full exemption, Tahlia's existing lease keeps its FBT rate.
• Same applies if she signed in February 2027 (still pre-1 April 2027).
• Once the lease ends and she signs a new one (say, trades up after 5 years), she cops the rate in place when the new deal starts.

Myths vs reality

Myth 1: "EV FBT exemption is being cancelled" — FALSE

It's being tapered, not killed off. Under-$75k EVs keep the full exemption until 1 April 2029. After that, a 25% permanent discount stays on the books indefinitely.

Myth 2: "Existing leases get clawed back" — FALSE

Existing salary packages are grandfathered at the FBT rate locked in when the lease started. No clawback.

Myth 3: "PHEVs are still in" — FALSE

Plug-in hybrids are treated as regular cars. Standard FBT rules apply.

Myth 4: "$89,332 is the EV threshold" — MOSTLY FALSE

The often-quoted $89,332 figure is the old luxury car tax (LCT) threshold for fuel-efficient cars. The relevant threshold for the EV FBT taper is closer to $75,000 (the FELCT figure), and it's indexed each year. Always check the current FELCT before quoting a number — Treasury and the ATO publish the indexed value annually.

Myth 5: "EVs over the threshold get nothing" — FALSE

From 1 April 2027, over-threshold EVs still get a 25% discount on FBT — handy, just smaller than the full exemption.

Myth 6: "The exemption is permanent for under-$75k EVs" — FALSE FROM 2029

From 1 April 2029, all EVs (including under-threshold ones) move to a 25% permanent discount — no more full exemption. The free ride has an expiry date.

Myth 7: "Companies buying EVs for fleet use get the exemption too" — DIFFERENT REGIME

The FBT exemption applies where there's a fringe benefit to an employee (i.e. private use of a company car). Pure commercial fleet vehicles with no private use don't attract FBT in the first place. The exemption is aimed at salary-packaging / novated-lease setups.

Myth 8: "I should buy now before the changes" — DEPENDS

• After an EV under $75,000: you've got until 1 April 2029 to lock in a new package at full exemption.
• After an EV over $75,000: from 1 April 2027 you'll only get the 25% discount. Sign before then and you preserve the bigger benefit.
• Existing leases signed before the relevant date are grandfathered.

But what if...

...I'm not employed (retired / self-employed sole trader) — can I still get this? The EV FBT exemption only kicks in via an employer-arranged novated lease or salary package — you need an employer. Sole traders and retirees buying a car for personal use don't pay FBT in the first place, so there's nothing to exempt. (Sole traders use business-vehicle deduction rules instead.)

...I signed my novated lease in 2025 — what happens to my rate? You're grandfathered at the rate locked in when you signed. The 2027 and 2029 taper dates don't claw back existing leases. When the lease ends and you sign a new one, you get whatever rate applies on that new start date.

...I want a Tesla Model Y — is it under or over the threshold? Depends on the year and the model variant. The threshold is the FELCT figure (~$75k, indexed annually). Check the drive-away price against the current-year FELCT — the ATO publishes the indexed value each year. Above the line by even $1 and you drop to the 25% discount from April 2027.

...is it worth rushing to sign before 1 April 2027?

• Under $75k? No rush — full exemption available till April 2029.
• Over $75k? Yes — signing before April 2027 locks in the full exemption for the life of the lease.

...what about a plug-in hybrid? PHEVs are out — they're treated as regular cars under standard FBT rules. No exemption, no discount.

...does this affect my HECS / HELP debt? Salary packaging an EV lowers your taxable income, which can slightly lower your HECS repayment. That's unchanged. The FBT taper doesn't touch the HELP rules directly.

Where genuine debate lives

1. Whether the 25% permanent discount is fat enough to keep EV uptake ticking — auto industry reckons not.
2. Whether threshold indexation keeps pace with EV price falls — Tesla price moves can push popular models in and out of the band year to year.
3. PHEV exclusion — climate folks are split. Some say PHEVs should qualify; others reckon they undermine the whole point.
4. Charging infrastructure — FBT changes alone don't put chargers in the ground; you need the rest of the policy mix.

A useful filter

When you see an EV FBT claim:

1. Under or over the FELCT threshold? Different treatment.
2. New lease or existing? Existing ones are grandfathered.
3. BEV or PHEV? PHEVs don't qualify.
4. Which FBT year? FBT years kick off 1 April.

Sources

• Treasury — Tax reform statement (Budget 2026-27)
• Theme 04 — Tax Reform
• BP2 Measures Index
• ATO — Fringe benefits tax: electric cars exemption (consult ato.gov.au for current FELCT threshold)

Related

• Theme 04 — Tax Reform
• Maya the graduate persona