In brief
The Australian Government has announced phased changes to the fringe benefits tax (FBT) exemption for eligible electric vehicles (EVs), narrowing the concession from 1 April 2027 and replacing the full exemption with a 25% FBT discount from 1 April 2029.
The changes, announced on 5 May 2026 in the lead-up to the 2026–27 Federal Budget, follow the release of the findings of Treasury’s Statutory Review of the Electric Car Discount. In summary, the Government’s proposal is that the changes will be introduced in three phases:
- Phase 1 (current rules continue): The existing full FBT exemption for eligible EVs continues until 31 March 2027.
- Phase 2 (1 April 2027 to 1 April 2029): The full FBT exemption will apply only to eligible EVs with a value of $75,000 or less. EVs valued above $75,000 but below the fuel-efficient luxury car tax (LCT) threshold will receive a 25% discount on FBT otherwise payable.
- Phase 3 (from 1 April 2029): All eligible EVs valued below the fuel-efficient LCT threshold will receive a 25% FBT discount. The full exemption will no longer be available.
Importantly, the announcement has flagged that “existing leases won’t be impacted by the changes”. The import tariff exemption for eligible EVs will also continue on an ongoing basis.
In detail
Since 1 July 2022, an FBT exemption has applied to eligible zero or low emissions vehicles provided by employers for the private use of employees, including under employer fleet and novated lease arrangements. To qualify, the car must be a battery electric vehicle, a hydrogen fuel cell electric vehicle (FCEV), or for arrangements entered into before 1 April 2025, a plug-in hybrid electric vehicle (PHEV), and it must have a value below the fuel-efficient LCT threshold ($91,387 for 2025–26).
The Government’s announcement to change the current FBT exemption settings responds to the Review’s findings that, while the electric car concessions have been effective in encouraging EV uptake, reducing emissions, and softening the impact of fuel price volatility, the rising fiscal cost and equity concerns warrant a recalibration of the policy. The phased approach is intended to provide a clear and graduated pathway, and minimising the risk of market shocks observed in jurisdictions that have withdrawn EV incentives abruptly.
Phase 1: To 31 March 2027
The current FBT exemption for eligible EVs continues unchanged until the end of the current 2026–27 FBT year. Employers, employees, and salary packaging providers can continue to enter into new arrangements on the existing basis during this period.
Phase 2: 1 April 2027 to 31 March 2029
From 1 April 2027, a $75,000 cap will be introduced for the full FBT exemption. The treatment of an eligible EV provided to an employee for private use will depend on the vehicle’s value:
- EVs valued at $75,000 or less will continue to be fully exempt from FBT.
- EVs valued above $75,000 but below the fuel-efficient LCT threshold will receive a 25% discount on the FBT otherwise payable. In effect, 75% of the calculated taxable value will remain subject to FBT in the ordinary way.
- EVs valued at or above the fuel-efficient LCT threshold will continue to fall outside the concession entirely.
The $75,000 cap is intended to focus the full concession on more affordable models and to encourage manufacturers to bring lower-priced EVs to the Australian market. The Government’s announcement notes that there are now around 10 EV models available under $40,000 (including, for the first time, a model under $30,000), compared with only two models under $40,000 a few years ago.
Phase 3: From 1 April 2029
From 1 April 2029, the full FBT exemption will be replaced by a permanent 25% FBT discount for all eligible EVs valued below the fuel-efficient LCT threshold. The $75,000 cap effectively ceases to operate as a separate threshold from this date, with a single, ongoing concessional rate applying across the eligible cohort.
What is the impact on existing and proposed EV benefit arrangements?
The Government has only confirmed that “existing leases” will not be impacted by the changes.
While further detail will be required in the implementing legislation, enabling grandfathering of existing leases is consistent with the approach taken when PHEVs were removed from the concession from 1 April 2025, where pre-existing lease arrangements were grandfathered for the remainder of the lease term, provided the “financially binding commitment” remained the same.
It remains to be seen whether there will be the same approach to grandfathering for non-lease arrangements where the EV benefit is provided under a “financially binding commitment” in place before the commencement of the changes or whether lease arrangements entered into during the phase 2 period will continue to be subject to the phase 2 arrangements after 1 April 2029.
In relation to proposed EV benefit arrangements, employers should expect renewed interest from employees in entering novated leases or salary packaged EV arrangements ahead of each phase commencement date, particularly in the lead-up to 1 April 2027 and 1 April 2029.
Import tariff exemption retained
The import tariff exemption for eligible EVs (those with a customs value below the fuel-efficient LCT threshold) will continue on an ongoing basis. The Review noted that more than 90% of EV imports already enter Australia tariff free under existing free trade agreements, and that retaining the exemption helps preserve a level playing field across manufacturers and maintain a broad choice of models for consumers.
It is also worth noting that in late March 2026, Australia and the European Union (EU) concluded negotiations on a new free trade agreement under which Australia agreed to create a new zero-emission vehicle LCT threshold of $120,000 from 1 July 2027 for EVs produced in the EU.
The takeaway
The announced phasing of the FBT electric car exemption represents a significant recalibration of one of the most widely used FBT concessions of recent years. The full exemption will remain available, in its current form, until 31 March 2027, but will then progressively narrow, ultimately to a 25% discount for all eligible EVs below the fuel-efficient LCT threshold from 1 April 2029.
For employers, salary packaging providers and employees, key actions to consider include:
- Reviewing existing EV benefit and novated lease policies to confirm how each phase will interact with current arrangements, including whether any contractual or policy updates are needed to reflect the new rules.
- Modelling the financial impact of the phased changes for typical employee cohorts (including for existing and transitioning fleets), particularly for vehicles priced above $75,000, where the move to a 25% discount from 1 April 2027 will be most pronounced.
- Communicating early with employees to manage expectations and to support informed decisions about timing of new EV leases ahead of the 1 April 2027 and 1 April 2029 commencement dates.
- Monitoring the legislation and ATO guidance for detail on transitional rules, the treatment of existing leases, and any consequential changes to reportable fringe benefits and salary packaging arrangements.
- Considering broader fleet and remuneration strategy in light of the reduced (but still concessional) FBT treatment, and the continuing import tariff exemption that supports model availability.
Employers and employees with EVs already provided under fleet programs or novated lease arrangements can take some comfort from the Government’s confirmation that existing leases will not be impacted by the changes. Nonetheless, the precise scope of any grandfathering, and the treatment of variations or extensions to existing arrangements, will need to be confirmed when the legislation is released.
Please reach out to your usual PwC contact to discuss how these changes may affect your organisation’s EV fleets, novated lease, and broader employee remuneration arrangements.
Contact us
For further information on how these measures may affect you or your business, please contact your PwC adviser or one of the contacts listed below.
Shane Pinto
Partner, Employment Taxes, PwC Australia
Adam Nicholas
Partner, Workforce, PwC Australia
Greg Kent
Partner, Workforce, PwC Australia
Anne Bailey
Partner, Workforce, PwC Australia
Paula Shannon
Partner, Workforce, PwC Australia
Tim Goodier
Director, Employment Taxes and Payroll Advisory, PwC Australia
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