The EV tax break is changing
Electric Vehicle FBT Exemption
The window for the full exemption
closes 31 March 2027.
The electric vehicle FBT exemption is being phased out over three years. If you or your employees are considering an EV via salary packaging or a novated lease, the window to lock in the current full exemption closes on 31 March 2027.
Phase 1
Full exemption
Now – 31 March 2027
Phase 2
Two-tier rules
1 April 2027 – 31 March 2029
Phase 3
Flat 25% discount
From 1 April 2029
Why this is happening
The EV exemption has worked. Since it was introduced, around 64,000 additional battery EVs have entered the market. EV and PHEV sales now represent 22.9% of new vehicles (March 2026), up from just 1.8% in May 2022.
64,000
additional battery EVs entered the market since the exemption was introduced
22.9%
of new vehicles are EV or PHEV (March 2026), up from 1.8% in May 2022
$1.7B
estimated Budget cost over five years — growing quickly
But the exemption has also raised two concerns for Government:
Cost
The Budget hit is growing quickly—estimated at $1.7 billion over five years.
Equity
Higher-income employees benefit disproportionately, widening the gap for workers on lower salaries.
The key point: Nothing changes immediately. The full exemption continues until 31 March 2027. But after that date, the rules tighten.
Three phases: what's changing and when
Now until 31 March 2027 — Current rules stay in place
- EVs below the Luxury Car Tax (LCT) threshold—approximately $91,387 for fuel-efficient vehicles in 2025–26—enjoy a complete FBT exemption
- For employees using novated leases or salary packaging, there is no change
- No urgency, except for timing considerations (see below)
1 April 2027 to 31 March 2029 — The exemption begins to narrow
EVs $75,000 or less
Full FBT exemption continues
EVs above $75,000 and below LCT threshold
25% FBT discount applies
This two-tier approach encourages manufacturers to keep supplying affordable EVs while tapering support for premium models.
What this means in numbers
An employee on a $100,000 salary considering a $85,000 EV via novated lease:
Now (Phase 1)
Full exemption
Maximum tax advantage
From April 2027 (Phase 2)
25% discount
Some advantage remains, but reduced
From April 2029 (Phase 3)
25% discount
Still available, but capped
From 1 April 2029 — Flat 25% FBT discount across all eligible EVs
All eligible EVs under the LCT threshold receive a uniform 25% FBT discount, regardless of price. The import tariff exemption for qualifying EVs remains permanently in place.
Timeline summary
| Date | Threshold | Exemption |
|---|---|---|
| Now – 31 March 2027 | Up to ~$91,387 | 100% exemption |
| 1 April 2027 – 31 March 2029 | Up to $75,000 | 100% exemption |
| 1 April 2027 – 31 March 2029 | $75,000–$91,387 | 25% discount |
| From 1 April 2029 | Up to ~$91,387 | 25% discount |
Important protection
Grandfathering: existing leases are protected
If you're already in a novated lease or salary packaging arrangement, the Government has indicated that existing arrangements won't be affected by the new rules.
- Current leases will continue to qualify for existing FBT concessions
- Draft legislation will clarify the precise scope, but you can take comfort that current packages are protected
- Once your lease ends or the vehicle is replaced, new rules apply to the next arrangement
This is a significant protection, but it does mean decisions made before 31 March 2027 lock in better terms than decisions made after.
What this means for your decision-making
For employees considering an EV
Before 31 March 2027 (Phase 1)
- Full FBT exemption available on any qualifying EV up to the LCT threshold
- Timing is optimal—lock in maximum tax advantage now
- No restrictions on price point
From 1 April 2027 (Phase 2)
- Full exemption only on EVs up to $75,000
- Premium EVs ($75,000–$91,387) get 25% discount instead
- Still attractive, but less advantageous
Example: An employee wanting a $90,000 EV should seriously consider entering a novated lease before 31 March 2027. Waiting until April 2027 means losing the full exemption and accepting a 25% discount instead—reducing the after-tax benefit significantly.
For businesses managing fleet vehicles
Consider the total cost of ownership, including FBT, running costs and charging infrastructure.
Commercial fleets
with high work-use vehicles may see limited impact from FBT changes
Salary-packaged EVs
for employees are becoming more attractive for recruitment and retention—the phased approach doesn't eliminate this, but the value proposition shifts
Second-hand EVs
may become more cost-effective, particularly where new-vehicle thresholds become restrictive from April 2027
Fleet strategy questions to ask now:
- How many employees currently use salary-packaged vehicles?
- Are you planning fleet refreshes before or after March 2027?
- What's your total cost of ownership for EVs vs. combustion vehicles?
- How does EV availability in the $30,000–$75,000 range affect your strategy?
For financial planning and tax advice
The EV phased wind-back interacts with salary packaging strategy, FBT planning and employee benefits.
- Timing matters for employees on the margin between EVs and other salary-sacrificed items
- Household planning around vehicle replacement cycles should factor in the exemption phases
- Business owners need to model the impact on fleet and employee attraction strategies
Key dates you need to know
| Date | What happens |
|---|---|
| Now – 31 March 2027 | Full exemption available. If you're considering an EV, this is the window for maximum benefit. |
| 1 April 2027 | Phase 2 begins. $75,000 threshold introduced. New arrangements enter with reduced exemption on higher-priced vehicles. |
| 1 April 2029 | Phase 3 begins. Flat 25% discount applies to all eligible EVs. |
Your next steps
What to do now
If you're an employee
Clarify your current position – Are you in an existing novated lease? (Grandfathering protects you.)
Model your options – Work with your adviser to understand the after-tax cost of different vehicles under current vs. Phase 2 rules
Consider timing – If you're on the fence about an EV, the exemption window closes 31 March 2027
Check availability – Confirm that your preferred EV model will remain available in the Australian market
If you're a business owner
Review your fleet strategy – Map out planned replacements and compare Phase 1 vs. Phase 2 economics
Model employee benefits – Run the numbers on salary-packaged EVs under current and future rules to understand recruitment and retention impact
Speak with your adviser – Understand how the changes affect your specific situation and industry
Plan ahead – If fleet refreshes are planned for 2027, consider timing before or after 1 April
For everyone
- EV momentum is strong, with increasing model choice in the $30,000–$40,000 range. The phased exemption wind-back doesn't eliminate the incentive, but it does change the timing of decision-making
- Grandfathering of existing leases means early movers are protected, so the advantage goes to those who act before March 2027
Talk to Modoras
Model the impact on your situation
before the March 2027 window closes.
We can help you model the impact on your specific situation—whether that's salary packaging strategy, fleet cost of ownership, or household financial planning. If you're considering an EV or want to understand how the phased wind-back affects your strategy, get in touch or book a consultation before the March 2027 window closes.
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