EV FBT Exemption 2026: What the Changes Actually Mean for Your Novated Lease
- Tim Bond
- 8 hours ago
- 4 min read
Key Take Aways - EV FBT Exemption
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If you've been Googling "EV FBT exemption 2026" at 11pm with a half-finished novated lease quote open in another tab, you're not alone. The Federal Budget handed down in May confirmed the electric car tax break is changing — and the headlines have made it sound scarier than it is. Here's the truth: nothing changes for you right now.
The full exemption still applies today, this FBT year, no asterisks.
What's shifting is the future — a phased wind-back starting April 2027 that mostly affects pricier EVs. We've gone through the Treasury detail so you don't have to, and broken down exactly who needs to act before 31 March 2027, who can relax, and what "grandfathering" really protects.
EV FBT Exemption 2026 - So what actually happened in the Budget?
On 5 May 2026, Treasurer Jim Chalmers and Climate Minister Chris Bowen confirmed the outcome of Treasury's review into the Electric Car Discount. The exemption had ballooned to an estimated $5.1 billion in forgone revenue — about three times the original forecast — largely because there was no price cap. Plenty of high-income earners were salary packaging $150,000+ EVs completely FBT-free.
The fix isn't an overnight axe. It's a three-phase wind-down designed to keep the concession but redirect it toward the EVs most Aussies can actually afford.
The three phases, in plain English
Phase 1 — now until 31 March 2027. Business as usual. If you sign a novated lease today on any eligible BEV under the LCT threshold, you get the full FBT exemption for the entire term of that lease — even if the rules change again later. This is the "lock it in" window everyone's talking about.
Phase 2 — 1 April 2027 to 1 April 2029. A $75,000 value cap is introduced.
EV priced $75,000 or less → still fully exempt, no change.
EV priced above $75,000 but below the LCT threshold → 25% discount on the FBT that would otherwise apply (so 75% of the taxable value still attracts FBT in the normal way).
Phase 3 — from 1 April 2029. The full exemption is gone for everyone. All eligible EVs under the LCT threshold move to the flat 25% discount, permanently.
Who this actually affects
Here's the bit the panicky headlines skip: the government says more than 90% of EV imports already enter Australia tariff-free, and there are now around 10 EV models under $40,000 (up from just two in 2021). If you're shopping mainstream- a Tasman, a Kona Electric, a BYD Atto 3, even most mid-spec Model Ys - you're sitting comfortably under that $75,000 cap and Phase 2 changes nothing for you.
It's the luxury end of the market - think upper-spec Model X, EV6 GT, Ioniq 9 - where the math gets noticeably less attractive from April 2027.
Grandfathering: the part everyone gets wrong
A grandfathered lease isn't a loophole, it's just how FBT concessions normally work. If your novated lease arrangement is in place and the vehicle is held and used before the rule changes, the exemption you locked in rides out for the full term of that specific lease - typically three to five years. Refinance, upgrade, or sign a brand-new lease after the cutoff, and you're back under whatever rules apply at that time.
What hasn't changed at all
The import tariff exemption for eligible EVs - that's permanent.
PHEV ineligibility - still excluded since April 2025; this is a BEV/hydrogen story only.
The Reportable Fringe Benefit Amount (RFBA) rule - even at zero FBT, the benefit still shows up on your income statement and can affect HECS repayments, the Medicare Levy Surcharge, and child support assessments. People forget this every single time.
Phase 1 (Now – 31 Mar 2027) | Phase 2 (1 Apr 2027 – 1 Apr 2029) | Phase 3 (From 1 Apr 2029) | |
EV under $75,000 | Full exemption | Full exemption | 25% discount only |
EV $75,000–$91,387 (LCT) | Full exemption | 25% discount | 25% discount |
EV over LCT threshold | No exemption | No exemption | No exemption |
PHEV | Not eligible | Not eligible | Not eligible |
New lease signed today | Locked in for full term | — | — |
The Buy/Avoid Verdict
Lock it in, don't panic-buy. If a sub-$75,000 EV was already on your radar, there's genuine value in signing before 31 March 2027 - but only if the vehicle and lease term make sense on their own merits, not purely to dodge a rule change that, for most buyers, won't even bite. If you're eyeing something north of $75,000, run the Phase 2 numbers with your payroll or salary packaging provider before you commit; the 25% discount is still real money, just less of it. Either way: get independent advice on RFBA impacts before you sign anything.
This isn't financial advice - it's a map of the terrain. Talk to a tax professional or your salary packaging provider for numbers specific to you.
FAQs
Does the FBT exemption disappear straight away?
No. The full exemption continues unchanged for any new arrangement made before 31 March 2027.
Will my current novated lease be affected if I've already signed?
No - existing leases are grandfathered under the rules that applied when you signed, for the full term of that lease.
Are plug-in hybrids included in the exemption?
No. PHEVs have been excluded from the EV FBT exemption since 1 April 2025. Only battery electric and hydrogen fuel cell vehicles qualify.
What's the luxury car tax threshold for 2026–27?
$91,387. Above that, no FBT exemption or discount applies at any phase.
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