Farewell to the full FBT exemption on Electric Vehicles

Article

Published: May 12, 2026

A review has been undertaken of the electric car discount, noting that it comprises the FBT exemption and the tariff exemption that applies to eligible cars. The legislation that introduced the electric car discount required a review of the first three years of the discount and its effectiveness in encouraging the uptake of zero- or low-emission vehicles. Treasury released its final report on 5 May 2026, and on the same day, the Federal Government announced significant changes to the FBT exemption for the private use of electric vehicles. These changes will apply in tranches, with the varying concessions taking effect on a per-FBT year basis.

The Federal Budget 2026 confirms that changes will be made, but there are differences between the previously announced changes and the Budget measures.

Changes from 1 April 2027

For the two FBT years covering the period 1 April 2027 to 31 March 2029:

The full FBT exemption will only be available for electric vehicles (EVs) costing up to $75,000, implemented through a 0% rate in the FBT statutory formula
Where the EV costs more than $75,000 and up to and including the luxury car tax (LCT) threshold, there will be a 25% discount, implemented through a 15% rate in the FBT statutory formula (rather than the standard statutory formula rate of 20%). As a guide, the LCT threshold for fuel-efficient vehicles for the 2025-26 FBT year is $91,387
For EVs costing above the LCT threshold, full FBT will apply to their private use (with no discount or exemption available).

In relation to FBT years commencing 1 April 2029, only the 25% discount may apply, and the full FBT exemption will cease. Noting that only those EVs costing up to and including the LCT threshold will receive the 25% discount, implemented through a 15% rate in the FBT statutory formula (rather than the standard statutory formula rate of 20%). All other EVs will be subject to full FBT.

Existing electric vehicles

Both the Treasurer and the Climate Change and Energy Minister stated in their joint announcement of these measures that the changes would not impact existing EV arrangements.

New electric vehicles acquired up to 31 March 2027

The original announcement on 5 May 2026 stated that there would be no changes for the FBT year for the period 1 April 2026 to 31 March 2027. The Budget papers state that all eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced. It also states that the existing 20% statutory rate (i.e. no discount/exemption) will continue to apply to all other cars, including electric cars that cost more than the LCT. Therefore, there is some uncertainty in the way the budget papers are set out regarding new EVs acquired up to 31 March 2027. The better view of the interpretation of these budget papers is that no changes will apply for the 2026-27 FBT year, however, it would be prudent to await further details to confirm this treatment.

BDO comment

The FBT exemption has already ceased for new plug-in hybrid electric vehicles (PHEVs) acquired from 1 April 2025. Further, the Government has limited the FBT exemption applying to PHEVs acquired before 1 April 2025, by requiring that a financially binding commitment exists to continue providing the vehicle for private purposes. Therefore, the Government has already commenced limiting the application of the FBT exemption on electric vehicles by targeting PHEVs.

Employees have until 31 March 2027 to receive the full FBT exemption/discount when salary packaging an EV. This is assuming that the Minister’s promise that existing EV leases will remain FBT-exempt will apply to all EVs from the date of the announcement up until 31 March 2027, after which the new measures apply (and not just to EVs up to 5 May 2026 when the announcement was made). We also assume that the FBT exemption will not continue to apply to EVs costing more than the LCT threshold, but the wording of the budget papers is unclear.

Employees wishing to take advantage of these concessions would be wise to focus on lower-valued vehicles and act sooner rather than later.

We note that electric vehicles remain fully subject to the reportable fringe benefits provisions. That is, the grossed-up taxable value must still be reported on the employee’s PAYG income statements.

It should also be noted that eligible EVs will remain exempt from import tariffs.

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