The Federal Government will progressively scale back the fringe benefits tax (FBT) exemption for electric vehicles. This will shift the scheme toward lower-cost models while retaining ongoing incentives for eligible EV buyers.
Under the changes announced by Treasurer Jim Chalmers and Climate Change and Energy Minister Chris Bowen, the current Electric Car Discount will transition over three phases, with a permanent 25 per cent FBT discount replacing the full exemption from April 2029.
The Government says the revised approach is designed to maintain support for EV uptake while improving the policy’s long-term sustainability.
Three-phase transition
The revised EV tax settings will be introduced gradually over three stages, with the Government aiming to maintain support for EV adoption while reducing the long-term cost of the scheme.
Phase 1: Until 31 March 2027
The current FBT exemption for eligible EVs will remain unchanged during the first stage of the transition.
Employers and employees can continue entering new novated lease and salary packaging arrangements under the existing rules.
Phase 2: 1 April 2027 to 31 March 2029
The second phase introduces a price cap designed to focus the full exemption on more affordable EV models.
- EVs priced at $75,000 or below will remain fully exempt from FBT.
- EVs above $75,000 but below the fuel-efficient Luxury Car Tax threshold will receive a 25 per cent discount on payable FBT.
- EVs above the fuel-efficient LCT threshold will not qualify for the concession.
Phase 3: From 1 April 2029
The final phase will replace the full exemption with a permanent reduced-rate concession across eligible EVs.
All eligible EVs below the fuel-efficient LCT threshold will receive a permanent 25 per cent FBT discount.
The Government confirmed existing lease arrangements will not be impacted by the changes.
Government cites changing EV market
The announcement follows the completion of the statutory review into the Electric Car Discount scheme, which found the policy had contributed to stronger EV uptake, lower emissions, and reduced exposure to fuel price volatility.
According to the review, the scheme contributed an estimated 78,000 additional EV sales in its first three years, including about 64,000 battery electric vehicles. EV sales increased from 2 per cent of new vehicle sales in 2021 to 13.1 per cent in 2025.
The Government said the market had matured significantly since the policy was introduced, with more affordable EV options now available.
“There were only two EVs under $40,000 – now there are around 10 and, for the first time, one model under $30,000,” the joint statement said.
Cost and equity concerns influenced review
While the review found the policy delivered benefits, including emissions reductions, fuel savings, and estimated health outcomes, it also highlighted concerns about rising budget costs and equity.
The FBT exemption was estimated to cost $2 billion over its first three years, with annual costs projected to reach $2.8 billion by 2028–29 if unchanged.
The review also found that higher-income earners were more likely to benefit through novated leasing and salary packaging arrangements.
EV uptake continues to grow
The Government said EV adoption had accelerated significantly since 2022, with electric and plug-in hybrid vehicles accounting for 22.9 per cent of new car sales in March 2026, compared with 1.8 per cent in May 2022.
It also said uptake had been strongest in outer-suburban and regional areas, including Gosford, Kellyville, Werribee, and Toowoomba.
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