FBT Exemption for Electric Vehicles: What the Wind-Back Means for You
Published by Deepak Singh | ProPartners Accountants & Advisers
The Federal Government has confirmed significant changes to the Fringe Benefits Tax (FBT) exemption for Electric Vehicles (EVs). If you've been enjoying the full FBT-free benefit through a novated lease or employer arrangement — or considering one — here's everything you need to know.
The Current Position
Under the existing rules, eligible EVs provided by an employer (including through salary packaging or novated lease arrangements) are fully exempt from FBT, provided the vehicle falls below the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles — currently $91,387 for the 2025/26 income year.
This has been a powerful incentive, with around half of all EV sales in Australia now occurring through novated leases. The scheme's popularity, however, has come at a cost — the annual tax expenditure has ballooned to an estimated $1.35 billion in 2025–26, forecast to grow to $2.8 billion by 2028–29 if left unchanged.
The Three-Phase Wind-Back
The Government will restructure the exemption in three stages:
Phase 1 — Status Quo Until 31 March 2027
The existing full FBT exemption continues unchanged. All eligible EVs below the LCT threshold ($91,387) remain fully exempt. No action required yet — but now is the time to plan.
Phase 2 — 1 April 2027 to 31 March 2029
From 1 April 2027, the full FBT exemption will only apply to EVs priced at $75,000 or less.
EVs priced above $75,000 but below the LCT threshold will receive only a 25% discount on their payable FBT — meaning 75% of the standard FBT rate will apply.
This threshold is designed to shift the focus of the policy toward more affordable EV models. Notably, some popular models — including certain Tesla Model Y variants, BMW iX and Polestar models — currently sit just above the $75,000 mark and will move into the partial discount band.
Phase 3 — From 1 April 2029 Onwards
From 1 April 2029, all EVs below the LCT threshold will receive only the 25% FBT discount. The full exemption will no longer exist for any vehicle.
EVs above the LCT threshold will continue to attract the full standard rate of FBT with no discount.
What Stays the Same
Good news: Eligible EVs will remain exempt from import tariffs on an ongoing basis, regardless of FBT changes.
Also important: Existing leases entered into before each phase change date will be grandfathered — meaning if you're already in a novated lease, your current FBT treatment will not be affected by the changes.
Key Takeaways for Employees & Businesses
1. Act before April 2027 if your EV is priced above $75,000. If you're considering an EV above $75,000 through a novated lease, entering the arrangement before 1 April 2027 may lock in the full exemption under grandfathering provisions.
2. Focus on vehicles under $75,000 for long-term FBT savings. Over 120 EV variants currently available in Australia are priced below $75,000 and will retain the full exemption through to 31 March 2029.
3. From 2029, recalculate your novated lease figures. The financial equation for novated leases will change materially from April 2029. EVs that are currently fully exempt could attract thousands of dollars in annual FBT. A review of your packaging arrangements will be essential.
4. Employers should review their fleet and salary packaging policies. Businesses offering EVs as part of remuneration packages should plan for increased FBT obligations and update employee communications accordingly.
Need Help Planning Your Next Move?
The window to maximise the full FBT exemption is open — but it's narrowing. Whether you're an employee exploring a novated lease or a business reviewing your fleet strategy, ProPartners can help you understand the implications and plan ahead.
Contact our team today to discuss how these changes affect your specific situation.
This article is general in nature and does not constitute personal financial or tax advice. Please consult a qualified adviser for guidance tailored to your circumstances.
ProPartners Accountants & Advisers | propartners.com.au