What is the three-phase EV FBT phase-down?

Phase 1 (now to 31 March 2027): full exemption for all eligible EVs under $91,387. Phase 2 (1 April 2027 to 31 March 2029): full exemption only for EVs under $75,000; 25% FBT discount for EVs $75,001–$91,387; full FBT for EVs above LCT threshold. Phase 3 (from 1 April 2029): all sub-LCT EVs receive a 25% FBT discount only — the full exemption ends entirely.

If I already have an EV novated lease, will the phase-down affect me?

Generally no. Existing novated leases entered into before the new rules take effect are grandfathered — they retain the full FBT exemption settings for the remaining term of the lease. Confirm this in writing with your salary-packaging provider and keep documentation of the vehicle's price, type and first-use date.

Evidence-backed. Sourced from ATO FBT guidance, BDO, KPMG, Perks, Maxxia, myNRMA, drive.com.au and thebeep.com.au. General information only — not financial or tax advice. Your specific FBT position depends on your employer, lease structure, vehicle price and eligibility. Consult a tax adviser or salary-packaging provider. Last updated: June 2026.

⚡ Key Takeaways

The full FBT exemption on eligible electric vehicles remains in force for the 2026 FBT year. Employers pay zero FBT on eligible BEVs and FCEVs (and grandfathered PHEVs) where the vehicle is under the LCT threshold ($91,387 for fuel-efficient vehicles in 2025–26) and all other conditions are met. The associated running costs — registration, insurance, maintenance, tyres and electricity — are also covered. ^[6][5][4]
In May 2026, the government announced a three-phase wind-down of the full exemption following a Treasury review that found the scheme had blown out by ~$2 billion over four years, with a disproportionate share of benefits going to higher-income employees in expensive EVs. ^[10][13][2]
Phase 1 (now to 31 March 2027): Status quo — full exemption continues for all eligible EVs under the LCT threshold. Existing novated leases are unaffected. Phase 2 (1 April 2027 – 31 March 2029): Full exemption retained only for EVs costing up to $75,000. EVs $75,001–$91,387 receive a 25% FBT discount (15% statutory rate). EVs above the LCT threshold attract full FBT. Phase 3 (from 1 April 2029): All sub-LCT EVs get a 25% FBT discount only — the full exemption ends entirely. ^{[10][11][12][2]}
Existing leases entered into before the law changes are generally grandfathered — they keep the full exemption settings for the remaining term of the lease. This makes acting before 31 March 2027 particularly valuable for anyone considering a novated lease EV. ^[14][10]
New PHEVs have been excluded from the FBT exemption since 1 April 2025 (unless under a binding commitment entered before that date). Only pure BEVs and hydrogen FCEVs qualify going forward. ^[4][6]

Australia’s EV Tax Rules Just Changed — FBT Savings That Could Still Save You Thousands

Q: Is the EV FBT exemption still available in 2026?

Yes — the full FBT exemption for eligible EVs (BEVs and FCEVs under the LCT threshold of $91,387) remains in force for the 2026 FBT year and continues through to 31 March 2027. The phase-down begins on 1 April 2027, when full exemption is restricted to EVs costing $75,000 or less.

Q: Do plug-in hybrid (PHEV) cars still qualify for FBT exemption?

No — not for new arrangements. PHEVs were removed from the FBT exemption from 1 April 2025. The only exception is a PHEV under a binding commitment entered before 1 April 2025 where the car was already in use for private driving. New PHEV arrangements from 1 April 2025 onward do not qualify.

Q: What is the LCT threshold for fuel-efficient vehicles in 2025–26?

$91,387 (including GST, excluding registration, stamp duty and insurance) for the 2025–26 financial year. A vehicle must have had LCT never payable on it — meaning its value was under this threshold at first sale — to qualify for the FBT exemption.

By The Fine Print editorial team | Last updated: June 2026 | 13 min read | ⚠️ Not financial advice

Australia’s electric vehicle FBT exemption has been one of the most talked-about tax concessions of the last three years. Since 2022, employees with the right employer arrangement have been able to get into an eligible EV with zero FBT payable — turning a pre-tax salary-sacrifice into what many described as the best tax deal available to ordinary workers. That deal is still alive in 2026, but it has an expiry date. The government announced in May 2026 that the full exemption will be wound back in three stages, with the first tightening hitting from 1 April 2027. If you’re considering a novated-lease EV, the window to lock in the best treatment is open right now — but it won’t stay open much longer for higher-priced models. This guide explains exactly how the current rules work, what’s changing and when, and what to do before the deadline.

📋 What’s in This Guide

How the current FBT exemption works — the checklist
The three-phase wind-down — dates and thresholds
What happened to plug-in hybrids
Who is most affected by the changes
Three actions to take before the deadline
Frequently asked questions

How the Current FBT Exemption Works — The Checklist

The “electric car discount” FBT exemption — introduced by the Treasury Laws Amendment (Electric Car Discount) Act 2022 — remains fully in force for the 2026 FBT year (1 April 2025 to 31 March 2026). Under this exemption, an employer pays zero FBT on an eligible electric vehicle where all of the following conditions are satisfied: ^[6][5][4]

FBT exemption eligibility checklist (2026 FBT year):

Vehicle type: Battery electric vehicle (BEV) or hydrogen fuel-cell vehicle (FCEV). PHEVs only qualify if under a binding commitment entered before 1 April 2025.
First held and used: On or after 1 July 2022.
Provided to: A current employee or their associate for private use.
Vehicle size: Designed to carry less than 1 tonne and fewer than 9 passengers.
LCT status: Luxury Car Tax (LCT) has never been payable on the car — meaning its value was under the LCT threshold for fuel-efficient vehicles at first sale. The threshold for 2025–26 is $91,387 (including GST, excluding registration, stamp duty and insurance).

Where the exemption applies, it also covers associated running costs: registration, insurance, maintenance, tyres and electricity for home charging — including in a novated lease structure. ^[5][6][4]

The FBT rate in 2026 is 47% — aligned with the top marginal tax rate plus Medicare levy. A company car that doesn’t qualify for the exemption can generate significant FBT liability for employers, which is why the exemption is so valuable and why getting the classification right matters. ^[9][5]

The Three-Phase Wind-Down — Dates and Thresholds

Following a Treasury review of the Electric Car Discount, the Federal Government announced on 5 May 2026 that the full FBT exemption will be wound back in three distinct stages. Treasury’s review found the scheme cost approximately $2 billion more than forecast over four years, with a large share of the benefit going to higher-income employees buying relatively expensive EVs. ^[10][13][2]

Phase 1 — Now to 31 March 2027

Current rules continue: full FBT exemption for all eligible EVs below the LCT threshold ($91,387)
No change to existing novated leases or employer-provided EV arrangements
PHEVs under binding pre-1 April 2025 commitments remain grandfathered

⚠️ Phase 2 — 1 April 2027 to 31 March 2029

EVs costing up to $75,000 (including GST, excluding on-road costs): full FBT exemption continues (0% statutory formula rate)
EVs costing $75,001 to $91,387 (below LCT threshold): 25% FBT discount only — implemented via a 15% statutory formula rate instead of the standard 20%
EVs costing above the LCT threshold ($91,387): full FBT applies, no discount

Phase 3 — From 1 April 2029 onwards

All eligible EVs under the LCT threshold receive a 25% FBT discount (15% statutory rate)
The full FBT exemption ends for all vehicles — including those currently under $75,000
This becomes the permanent, long-term position replacing the Electric Car Discount

💡 Grandfathering of existing leases: Treasury and KPMG confirm that existing novated leases entered into before the new rules take effect are generally not impacted — they retain the full exemption settings for their remaining term. This means locking in a qualifying arrangement before 31 March 2027 can preserve full exemption well into the Phase 2 and Phase 3 periods, depending on your lease term. ^[14][10]

What Happened to Plug-In Hybrids

Plug-in hybrid electric vehicles (PHEVs) were removed from the FBT exemption from 1 April 2025, unless under a binding commitment entered into before that date where the PHEV was already in use for private driving. Those “grandfathered” arrangements can continue under the exemption; new PHEV arrangements from 1 April 2025 onward do not qualify. ^[4][6]The exclusion was justified on environmental grounds — the government wanted the exemption to drive uptake of true zero-emissions vehicles rather than transitional technologies. It has been controversial for drivers who saw PHEVs as a practical bridge during the charging-infrastructure build-out, but the position is now settled. Going forward, if you want the full FBT benefit, the vehicle must be a pure BEV or hydrogen FCEV. ^[4][11]

Who Is Most Affected by the Changes

Buyers of premium EVs — the biggest losers from Phase 2

The phase-down is explicitly designed to concentrate the remaining concession on cheaper EVs. From April 2027, full exemption disappears for vehicles above $75,000 — meaning premium models (Tesla Model S and X, high-specification European EVs) drop from a full exemption to a partial discount, and eventually to the same universal 25% discount as all other sub-LCT EVs from April 2029. Buyers considering these models have the most to gain from acting before the Phase 2 deadline. ^[2][3][11]

Mid-range EV buyers — good news until 2029

EVs under $75,000 — which covers a substantial portion of the current Australian EV market including popular models like the Tesla Model 3 Standard Range, the BYD Seal, the Polestar 2, and various others — retain the full exemption through to 31 March 2029. For buyers considering these models, Phase 2 doesn’t change the economics; Phase 3 (April 2029) is the relevant deadline. ^[7][8][11]

Employees with existing leases — protected

If your employer-provided EV or novated lease is already running and qualifies for the current full exemption, KPMG and Maxxia confirm the grandfathering principle: the existing arrangement is generally not affected by the phase-down for its remaining term. You need to confirm this with your salary-packaging provider and maintain documentation, but the intent of the law is that you keep what you locked in. ^[10][14]

The employer FBT misclassification risk

The 2026 FBT year has the ATO actively focusing on car benefits, record-keeping and correct application of the EV exemption. With the FBT rate at 47% of the taxable value, misclassifying an EV — assuming it’s exempt when it exceeds thresholds, or missing the PHEV cut-off — creates large unexpected FBT bills. Those costs often flow through to employees via lease re-pricing or reduced benefits. Make sure your employer or salary-packaging provider has correct documentation and is applying the rules accurately. ^[5][9][6]

✅ Three Actions to Take Before the Deadline

Action 1: Run the numbers now and lock in a novated lease before 31 March 2027

If you’re considering an EV through a novated lease arrangement and haven’t acted yet, the window for full exemption on models above $75,000 closes on 31 March 2027. Before that date, confirm the vehicle you’re considering is a BEV or FCEV (not a PHEV), was or will be first held and used after 1 July 2022, and is priced below the LCT fuel-efficient threshold ($91,387 including GST). If all those boxes are ticked, entering a binding arrangement before 31 March 2027 can lock in full FBT exemption for the life of the lease — potentially thousands of dollars in savings per year compared to purchasing the same car post-tax. Talk to your employer and a salary-packaging provider to get specific after-tax cost projections for your income level. ^{[7][8][10][14]}

Action 2: Target below $75,000 for the most future-proofed savings

If you’re comparing EV models and are flexible on price, staying under the $75,000 threshold is meaningfully better under the new rules. Models under that cap keep the full exemption until 31 March 2029 — two extra years of zero FBT compared to a $76,000 model that loses exemption on 1 April 2027. When comparing options, ask your salary-packaging provider for side-by-side after-tax cost projections under current rules, Phase 2 rules and Phase 3 rules. The difference in total cost of ownership between a sub-$75k model and a $80k model is not just the $5,000 purchase price gap — it can be several thousand dollars in additional FBT over the lease term. ^[12][1][2]

Action 3: If you already have an EV lease, confirm grandfathered status in writing

Contact your salary-packaging provider or employer HR and ask them to confirm in writing whether your existing EV novated lease is covered by the current full FBT exemption for its full remaining term, and whether any proposed law changes will affect your package. At the same time, gather and file the core documents: the car’s GST-inclusive price (confirming it was under the LCT threshold at first sale), the first-use date (confirming it was on or after 1 July 2022), the vehicle type (BEV or FCEV — or PHEV with binding agreement date if applicable), and a copy of the lease agreement or employer FBT policy. These documents are what you’ll need if the ATO reviews your employer’s FBT treatment. ^{[14][10][6][5][4]}

❓ Frequently Asked Questions

Is the EV FBT exemption still available in 2026?

Yes — full exemption remains in force through 31 March 2027 for eligible BEVs and FCEVs under $91,387. Phase-down begins 1 April 2027. ^[6][5][2]

What is the three-phase wind-down?

Phase 1 to 31 March 2027: full exemption. Phase 2 April 2027–March 2029: full exemption under $75k only; 25% discount $75k–$91k. Phase 3 from April 2029: 25% discount for all sub-LCT EVs. ^[10][11][12]

Do PHEVs still qualify?

Only grandfathered PHEVs under a binding commitment entered before 1 April 2025. New PHEV arrangements don’t qualify. ^[4][6]

Will the phase-down affect my existing novated lease?

Generally no. Existing qualifying leases are grandfathered at the full exemption rate for their remaining term. Confirm in writing with your provider. ^[14][10]

What is the LCT threshold for fuel-efficient vehicles in 2025–26?

$91,387 (GST inclusive, excluding on-road costs). The vehicle must have never had LCT payable on it to qualify for the exemption. ^[8][7][6]

⚖️ The Fine Print Verdict

The full EV FBT exemption is still one of the best tax deals available to Australian employees in 2026 — but the window is closing. For vehicles above $75,000, the full exemption disappears on 1 April 2027, less than a year away. For vehicles under $75,000, the full exemption runs until 31 March 2029. For all sub-LCT EVs, the long-term landing point from April 2029 is a permanent 25% FBT discount — materially less valuable than the current zero-FBT treatment. The grandfathering of existing leases means that acting now, for the right vehicle at the right price, can lock in zero FBT for the life of a multi-year lease even after the phase-down takes effect. If you have been sitting on the fence about a novated-lease EV, the tax economics are at their peak today and declining from April 2027 onwards. That’s not a reason to buy a car you don’t need — but if you were going to do this anyway, delaying past March 2027 will cost real money.

👉 Check the vehicle price against the $75,000 and $91,387 thresholds. Run the after-tax numbers with your salary-packaging provider. If it stacks up, lock in before 31 March 2027.

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📚 Sources & References

BDO, “Farewell to the full FBT exemption on EVs,” bdo.com.au/en-au/insights/budget/2026/farewell-to-the-full-fbt-exemption-on-evs
ATO, “Electric car discount — more sustainable FBT treatment of electric cars,” ato.gov.au/about-ato/new-legislation/in-detail/businesses/electric-car-discount-more-sustainable-fbt-treatment-of-electric-cars
The Guardian, “Labor extends EV tax break for cheaper vehicles,” theguardian.com/environment/2026/may/04/labor-extends-ev-tax-break-cheaper-vehicles-soaring-fuel-prices (4 May 2026)
Perks.com.au, “Electric car FBT exemption — what’s new in 2026,” perks.com.au/insights/electric-car-fbt-exemption-whats-new-in-2026/
Progue.com.au, “Fringe benefits tax — electric vehicles,” progue.com.au/fringe-benefits-tax-electric-vehicles/
ATO, “FBT on cars, other vehicles, parking and tolls — electric cars exemption,” ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/electric-cars-exemption
Tesla Australia, “Incentives,” tesla.com/en_au/support/incentives
Novated Lease Australia, “Electric cars exempt from FBT,” novatedleaseaustralia.com.au/electric-cars/exempt-from-FBT
DFK Gooding Partners, “Your guide to FBT year-end,” dfkgoodingpartners.com.au/your-guide-to-fbt-year-end/
KPMG, “Australia: full FBT exemption for EVs to be phased out and replaced with permanent discount from 2029 onwards” (May 2026), kpmg.com/us/en/taxnewsflash/news/2026/05/tnf-australia-full-fringe-benefit-tax-exemption-for-evs-to-be-phased-out-and-replaced-with-permanent-discount-from-2029-onwards.html
myNRMA, “EV tax breaks to shrink” (2026), mynrma.com.au/open-road/news/2026/ev-tax-breaks-to-shrink
thebeep.com.au, “2026 Federal Budget — EV buyers and motorists Australia,” thebeep.com.au/car-news/2026-federal-budget-ev-buyers-motorists-australia
drive.com.au, “FBT wind-back for electric cars to rake in $1.9 billion over four years,” drive.com.au/news/fbt-wind-back-for-electric-cars-to-rake-in-1-9-billion-over-four-years/
Maxxia, “The EV discount is under review in 2026 — what you need to know,” maxxia.com.au/news/novated-leasing/the-ev-discount-is-under-review-in-2026-what-you-need-to-know

This article is general information only and does not constitute financial or tax advice. EV FBT rules are based on ATO guidance and Budget announcements current as at June 2026. The phase-down is subject to legislation. Your specific FBT position depends on your employer arrangement, vehicle price and eligibility. Consult a registered tax agent or salary-packaging provider. The Fine Print 🇦🇺 is not affiliated with the ATO or any firm mentioned.

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