Electric vehicle FBT exemption scaled back

The Government has announced that it will scale back the FBT exemption for new electric vehicles from 1 April 2027.

The full Fringe Benefits Tax (FBT) exemption for electric vehicles will be limited to EVs costing $75,000 or less from 1 April 2027.

Currently, the most common use of the EV FBT exemption is when an employee purchases an EV for their personal use under a novated lease and paid for by their employer under an FBT agreement. The novated lease payments are deducted from the employee’s salary from pre-tax income under a salary sacrifice agreement¹ - the higher the employee’s salary, the more they save.

While the FBT exemption has helped to stimulate demand for EVs -Treasury estimates that around 133,000 vehicles have used the FBT exemption – the cost of providing the exemption has blown out to $1.35 billion in 2025-26 alone and escalating.

To qualify for the exemption, the EV must be zero emissions (battery electric or hydrogen fuel cell), cost less than the Luxury Car Tax threshold (currently $91,387 for fuel efficient vehicles and estimated to be $91,661  for 2027), and be held for the private use of the employee and associate of theirs (spouse, etc).

What’s changing?

The FBT exemption will be scaled back from 1 April 2027 in two phases:

Please contact me if you would like specific advice on how the impending changes might affect you, your business, or your employees.

What happens to existing FBT arrangements?

The good news is that existing leases will not be impacted by the changes unless the terms of the agreement change.

If you or your employees want to take advantage of the full FBT exemption on EVs, you have until 31 March 2027. To be eligible for the exemption, the vehicle must be in use by your employee by this date and not simply contracted.

Need assistance?

Reach out to Dara Siyali if he can help manage how the scaling back of the EV exemption might impact you, your team, or your business.

t +61 2 9221 6666
e dara.siyali@hayesknight.com.au

Reference

• Media Release - Fairer tax treatment to encourage affordable EVs
• Treasury statutory review of the electric vehicle car discount
• ATO Electric car exemption (current exemption)

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¹ While the electric vehicle is exempt from FBT, the employee still needs to report the value of the fringe benefit on their tax return (their reportable fringe benefit amount, RFBA) but this is not assessable for them. Instead, it is used by the ATO to calculate exposure to a liability or assess eligibility for items such as Medicare Levy Surcharge, private health insurance, HECS-HELP repayments, Division 293 tax on superannuation, etc.