The FBT exemption for electric cars has made a novated lease on an EV one of the most tax-effective benefits an employee can get. It is being wound back in two steps, on 1 April 2027 and 1 April 2029.
The Government announced the changes in May 2026. Exposure draft legislation was released in September 2026, with consultation closing on 28 September. It is not yet law, but the direction and the dates are clear enough to plan around.
The EV FBT timeline
| Period | EVs up to $75,000 | EVs over $75,000 and under the luxury car tax threshold |
|---|---|---|
| Now to 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 | 25% FBT discount |
Cars at or above the luxury car tax threshold for fuel-efficient vehicles, which is $91,661 for 2026–27, get no concession, as is the case now.
Which cars qualify for the EV FBT exemption today?
- The car is a battery electric or hydrogen fuel cell vehicle
- It was first held and used on or after 1 July 2022
- It has never been subject to luxury car tax, which means it was priced below the fuel-efficient threshold when first sold
- It is a car for FBT purposes: designed to carry less than one tonne and fewer than nine passengers
Plug-in hybrids lost the exemption on 1 April 2025, except under arrangements that were already committed before that date.
Who is grandfathered?
Under the draft, the exemption continues for a particular car where the last commitment relating to it was made before the relevant 1 April date. A binding novated lease signed before 1 April 2027 on an $85,000 EV keeps the full exemption for the term of that lease.
A new commitment after the date brings the car under the new rules. That includes refinancing, extending the lease, and changing employers and novating the lease again.
So the dates that matter are:
- 31 March 2027 for an EV priced above $75,000
- 31 March 2029 for every other eligible EV
Allow for delivery times, and make sure the finance and novation documents are signed and binding before the date. An order form on its own may not be enough.
What the 25% FBT discount means in dollars
Under the statutory formula, the taxable value of a car fringe benefit is 20% of the car’s base value each year. The draft’s 25% discount effectively reduces that to 15%. The discount applies under the statutory formula only, not the operating cost method.
| No concession | 25% discount | Full exemption | |
|---|---|---|---|
| Car base value | $80,000 | $80,000 | $80,000 |
| Taxable value under the statutory formula | $16,000 | $12,000 | Nil |
In a typical novated lease, the employee makes after-tax contributions equal to the taxable value so that no FBT is payable. With the 25% discount, that means $12,000 a year of the car’s cost is paid from after-tax salary instead of pre-tax salary. For an employee on the 30% rate plus the Medicare levy, that is about $3,840 a year of tax saving that the full exemption would have delivered.
The reportable fringe benefits trap
This catches people under the current rules, and it will continue. An exempt EV benefit is still a reportable fringe benefit. The grossed-up value appears on your income statement even though no FBT was paid.
For the $80,000 car above, the reportable amount is about $30,189. It does not increase your taxable income, but it is counted for:
- HELP and other study loan repayments
- The Medicare levy surcharge
- Division 293 tax on super contributions
- Child support assessments
- Family tax benefit and other income-tested payments
- The private health insurance rebate
An employee with a HELP debt can find that an FBT-free EV lifts their compulsory repayment by several thousand dollars a year.
What employers need to do
- Keep calculating the taxable value of exempt EV benefits, because it is needed for employees’ reportable amounts
- Use the ATO’s home charging rate of 4.20 cents per kilometre where employees charge at home and electricity is part of the package
- Update salary packaging policies, and tell employees about the 2027 and 2029 dates well in advance
- Check with your novated lease provider how they are handling orders that straddle the cut-off dates
- Review any employer-provided electric cars, which are affected in the same way as novated leases
What to do now
- If you are considering an EV priced above $75,000, the commitment needs to be in place before 1 April 2027.
- For an EV at or below $75,000, the full exemption is available for commitments made up to 31 March 2029.
- If you already have an EV lease, avoid varying, extending or refinancing it without checking the effect on grandfathering.
- Before signing, work out the reportable fringe benefit amount and what it does to your HELP repayments and other income tests.
- Watch for the final legislation. Details such as how the $75,000 is measured could change.
Common questions about the EV FBT changes
Is the EV FBT exemption being abolished?
Not entirely. From 1 April 2029 the full exemption is replaced by a 25% discount for eligible EVs below the luxury car tax threshold.
How is the $75,000 cap measured?
The final legislation will confirm this. Until it does, do not assume that on-road costs are excluded.
Do used EVs qualify?
A used EV can qualify if it was first held and used on or after 1 July 2022 and has never been subject to luxury car tax.
I am a sole trader. Can I use the EV FBT exemption?
No. FBT applies to benefits provided to employees, and a sole trader or partner cannot employ themselves. Your car costs are claimed as business deductions instead, as covered in our article on car and travel claims.
Need a hand with this?
If you are an employer with staff on EV novated leases, or an employee weighing one up, the numbers depend on your pay, your HELP balance and the car’s price against the new cap. We can run the comparison, check the grandfathering position and review your FBT reporting. We are Chartered Accountants and registered tax agents in Cairnlea, in Melbourne’s west.
Related reading
- FBT traps that catch small employers
- Car and travel claims: 88 cents a kilometre, and the trips you can’t claim
- $20,000 instant asset write-off now permanent, plus loss carry-back
- Payday Super started 1 July 2026: what employers need to do now
- Our full range of services
Sources
- ATO – Electric car discount: more sustainable FBT treatment of electric cars
- ATO – Electric cars exemption
- ATO – Luxury car tax rate and thresholds
This article is general information only and does not take your personal circumstances into account. It reflects the law and announced measures as at October 2026. Measures described as draft or proposed may change before they are enacted. Speak to us before acting on anything you read here.
