EV FBT Exemption: Proposed Changes From April 2027

If you drive an electric vehicle through a novated lease, the tax treatment could change from 1 April 2027 if the Budget proposal becomes law. The full fringe benefits tax (FBT) exemption, which has made EVs a popular salary-packaging choice in Australia, would be phased out in three stages. The biggest change would come on 1 April 2029, when the full exemption would end for every price bracket.

For most EV drivers, three things matter: what the proposal says, whether your existing lease would be protected, and what the change would cost if it takes effect.

What the EV FBT exemption is — and what it costs your income test

The EV FBT exemption was introduced by the Treasury Laws Amendment (Electric Car Discount) Act 2022, applying from 1 July 2022. Under that law, eligible zero or low emissions vehicles below the fuel-efficient Luxury Car Tax (LCT) threshold — $91,661 for 2026–27 — are exempt from fringe benefits tax when provided by an employer to an employee (most commonly via a novated salary sacrifice lease).

Before the exemption, an employer providing a car under a novated lease faced annual FBT calculated on the vehicle's taxable value. For a $65,000 car under the statutory formula, that equates to roughly $12,700 in FBT per year, a cost usually passed back to the employee. The exemption removed this cost for eligible EVs, and the saving flowed through to lower novated lease repayments.

One side effect surprises many EV drivers: even though the employer pays $0 FBT on the vehicle, the grossed-up value of the car benefit is still reported on your income statement as a reportable fringe benefits amount (RFBA). For a $65,000 EV, this RFBA is approximately $24,500. The reportable amount always uses the lower gross-up rate, so it is smaller than the figure used to work out FBT itself. That amount is added to your taxable income for the purposes of the Medicare Levy Surcharge and your HECS repayment income, even though no FBT is paid. If your base salary sits just below the MLS threshold, the RFBA can tip you into a surcharge tier. Use Velofy's Medicare Levy Surcharge Calculator to check whether your EV benefit affects your MLS exposure.

Also worth noting: plug-in hybrid vehicles (PHEVs) stopped being eligible for the FBT exemption from 1 April 2025 under existing law. This is a separate, earlier exclusion, not part of the phase-out proposed in May 2026. The ATO allows a transitional exception: broadly, where the PHEV was already being provided and exempt before 1 April 2025 and a binding commitment to continue the arrangement predates that date, the exemption can continue for that arrangement. Since 1 July 2025, the fuel-efficient definition for the LCT threshold has also been tightened to 3.5 litres or less per 100km. For new arrangements, only fully battery electric vehicles and hydrogen fuel cell vehicles qualify.

What is proposed — the three phases

The 2026–27 Federal Budget proposed a three-stage phase-out of the full FBT exemption. This is a proposal only: as at 19 October 2026 it had not passed Parliament.

Fuel-efficient LCT threshold: $91,661 for 2026–27 (ATO, indexed annually). Phases 2 and 3 are based on the Budget proposal and Treasury's draft law — not law as at 19 October 2026.

Under Treasury's draft law, a car keeps the full exemption if the last binding commitment for it was made before 1 April 2027 (cars valued above $75,000) or before 1 April 2029 (cars valued at $75,000 or less). A new commitment, such as refinancing the car or changing employer, would end that protection. If your novated lease is already in place, the exemption would continue for its remaining term unless you make a new commitment.

What it would mean for take-home pay — Alex's worked example

Alex is 34, a software engineer in Melbourne earning $95,000. Alex drives a $65,000 battery electric vehicle on a five-year novated lease through their employer — a GST-registered business.

The car is valued under $75,000, so under the proposal it would keep the full FBT exemption in Phases 1 and 2. Under the draft law, Alex's existing lease would keep the full exemption for its whole term, because it was committed before 1 April 2029. The proposed 25% discount would apply to a new lease Alex commits to from 1 April 2029.

FBT calculated using the statutory formula: base value $65,000 × 20% statutory fraction = $13,000 taxable value; Type 1 gross-up (2.0802) × 47% FBT rate = $12,710/year at full FBT. The proposed 25% discount gives 75% × $12,710 = $9,533. The additional FBT cost is typically built into the novated lease budget. Calculations are illustrative — actual outcomes depend on your lease structure and employer arrangement.

Under the proposed 25% discount, the FBT on a $65,000 car would be about $9,533 a year. Novated lease providers usually build this into the lease package, often through after-tax contributions from the employee. Over three years of such a lease, that adds up to roughly $28,600 compared with the full exemption.

Alex's RFBA position is also worth checking. Under current law, even with $0 FBT payable, the grossed-up value of the car benefit (approximately $24,500 for a $65,000 EV) still appears as RFBA on Alex's income statement. If Alex's taxable income is $95,000, this takes Alex's income for MLS and HECS repayment purposes to about $119,500 — in the first surcharge tier ($105,001–$123,000, 1%) for 2026–27 if Alex has no private hospital cover. Use Velofy's Medicare Levy Surcharge Calculator to check whether your EV RFBA affects your surcharge tier, and use the Salary Sacrifice Calculator to model how different sacrifice levels interact with your marginal rate.

EV stamp duty is a separate question — current law by state

The proposed FBT change is federal. State and territory stamp duty rules for electric vehicles are separate and vary a lot.

State rules checked October 2026. Rates change with state budgets — confirm current rates before you buy.

Use Velofy's car stamp duty calculator to model the stamp duty on a vehicle purchase in your state before committing to a purchase price. If the alternative to buying is holding onto what you already drive, the repair or replace calculator weighs a repair bill against the full cost of changing cars — depreciation, duty and loan interest included — and the reasoning behind it is set out in is your car worth fixing?

Should you act before April 2027?

The proposed changes are not law yet, and no deadline has legal force until Parliament passes the law. Some measures from the same Budget have passed — the permanent $20,000 instant asset write-off became law in August 2026 — but as at 19 October 2026 this one was still draft law.

Today, the full EV FBT exemption applies under current law for eligible vehicles under the $91,661 fuel-efficient LCT threshold. If you are already in a novated lease, it continues under the existing rules until the lease term ends, and the draft law would protect it unless you make a new commitment such as refinancing.

If you are considering a new novated lease, the three proposed phases set the longer-term cost. A car valued at $75,000 or less would stay fully exempt until 31 March 2029 under the proposal, and under the draft a lease committed before 1 April 2029 would keep that for its term. For a new lease from 1 April 2029, only the 25% discount would apply, adding about $795 a month in FBT for a $65,000 car compared with today. A car valued above $75,000 would face that change for commitments from 1 April 2027.

For any decision involving specific numbers, your lease term, or your income structure, a registered tax agent can advise on the current legislative status and your personal circumstances. Use Velofy's Tax Calculator to model your overall income tax position.