The full FBT exemption for electric cars is becoming a permanent 25% discount. Here are the dates and what they mean.
Since 1 July 2022, eligible electric cars provided to employees have been exempt from fringe benefits tax (FBT), which is what makes an electric car on a novated lease so much cheaper than a petrol car bought the same way. The 2026-27 Federal Budget, announced on 5 May 2026, keeps support for electric cars but reshapes it. The Government will, in its own words, transition the arrangements to a "permanent 25 per cent fringe benefits tax (FBT) discount." This piece sets out the timeline and what it means for anyone weighing up an EV through salary packaging.
The change happens in stages rather than all at once. According to the Government's tax reform package, the full FBT exemption continues until 31 March 2027. From 1 April 2027, the full exemption applies only to eligible electric cars costing $75,000 or less, while eligible electric cars priced above $75,000 (but still below the luxury car tax threshold) receive a 25% discount on the FBT that would otherwise apply. From 1 April 2029, the 25% discount applies to all eligible electric cars. Electric cars costing up to $75,000 continue to receive the full exemption provided the fringe benefit arrangement commences before 1 April 2029.
| Period | EVs up to $75,000 | EVs over $75,000 (under LCT threshold) |
|---|---|---|
| Until 31 March 2027 | Full FBT exemption | Full FBT exemption |
| 1 April 2027 to 31 March 2029 | Full FBT exemption | 25% FBT discount |
| From 1 April 2029 | 25% FBT discount (unless grandfathered) | 25% FBT discount |
The eligibility test for the concession has not changed. The vehicle must be a battery electric or hydrogen fuel cell car, designed to carry a load of less than one tonne and fewer than nine passengers, first held and used on or after 1 July 2022, and valued below the luxury car tax threshold for fuel-efficient vehicles, which is $91,387 for the 2026-27 year. Plug-in hybrids are no longer eligible: from 1 April 2025 a plug-in hybrid is not treated as a zero or low emissions vehicle for these rules, and the Budget did not reinstate them. The ATO sets out the full conditions on its electric cars exemption page.
Existing arrangements are grandfathered at the treatment that applied when they commenced, regardless of vehicle price. In practice, if you enter a novated lease while the full exemption applies and you do not make a material change such as refinancing or swapping the car, that treatment can continue for the life of the arrangement, even past the phase-in dates. The headline takeaway is that the most generous version of the concession, the full exemption, is time-limited for more expensive cars, so the value of locking in an arrangement earlier rather than later is worth weighing up against your own circumstances. As always with salary packaging, the FBT treatment is only one part of the picture alongside the lease cost, running costs and your marginal tax rate.
Disclaimer: This article summarises the electric car FBT changes announced in the 2026-27 Federal Budget. Budget measures are subject to legislation and may change before they take effect. This is general information only and not financial or tax advice. Refer to the official Budget website and the ATO for the latest rules, and consult a qualified tax professional for advice about your circumstances.