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The federal government has confirmed its fringe benefits tax (FBT) exemption for electric vehicles (EV) will remain in place for another year, before being gradually scaled back to encourage manufacturers to bring more affordable alternatives to market.
Under the current Electric Car Discount policy, eligible EVs obtained through salary sacrifice and novated lease arrangements are currently exempt from the FBT.
As part of the phase out, announced in a joint release from federal Treasurer Jim Chalmers and Minister for Climate Change and Energy Chris Bowen on Tuesday (5 May), the Electric Car Discount will remain in place until the end of March 2027.
From April 2027 to April 2029, EVs priced above $75,000 and below the luxury car tax threshold will move from a full FBT exemption to a 25 per cent FBT discount.
After this, all EVs below the luxury car tax threshold will receive the 25 per cent discount on payable FBT, with eligible EVs also exempt from import tariffs on an ongoing basis.
The decision comes as the government released the final report of its Statutory review of the Electric Car Discount, which estimated the mechanism had resulted in around 64,000 additional battery electric vehicle sales over the first three years to December 2025, and 78,000 additional EV sales when including plug-in hybrid electric vehicles.
In their release, Treasurer Chalmers and Minister Bowen highlighted changing market dynamics, saying the new rules would encourage manufacturers to offer more affordable, lower-cost-to-run EVs in the Australian market.
“The electric car market has rapidly matured since we came to government, and these changes will ensure our tax settings are still suitable,” they said.
“There were only two EVs under $40,000 – now there are around 10 and, for the first time, one model under $30,000.
“In March 2026, 22.9 per cent of new cars sold were electric or plug-in hybrid, up from 1.8 per cent in May 2022.
“The strongest uptake of our EV tax cut is occurring primarily outside the inner cities – with Gosford, Kellyville, Werribee and Toowoomba among the highest uptakes.
“These commonsense changes have been informed by the Electric Car Discount review, which found that the scheme had been successful at encouraging uptake, reducing emissions, and softening some of the impact of global oil price fluctuations.”
Clear roadmap
Julie Delvecchio, CEO of the Electric Vehicle Council, welcomed the government’s decision, noting it provides greater certainty for consumers considering a switch to electric vehicles.
“This decision means most electric cars in Australia will remain eligible for the Electric Car Discount, allowing people to save thousands on their annual fuel bills,” Delvecchio said.
“This is especially important for outer suburban households – which are strongly represented in EV leasing uptake – where people drive more and spend more on fuel. Keeping EVs accessible means real savings where it matters most.”
Delvecchio also noted the impact of ongoing price pressures.
“Electric vehicles are increasingly a cost-of-living solution, saving households around $3,000 per year in fuel and maintenance,” Delvecchio said.
“Crucially, the majority of EVs on the market – including popular models from BYD, Tesla and Hyundai – will remain eligible for the full exemption until 2029.”
Diane Tate, CEO of the Australian Finance Industry Association, said the decision highlights the importance of policy stability.
“This review confirms what our members are seeing in the market: the FBT exemption for EVs remains the single-most critical incentive that Australia has for cleaner vehicles, and it is working. It has helped tens of thousands of Australians move into cleaner, cheaper-to-run vehicles, supported confidence in the EV market and strengthened the link between action on net zero transition, transport policy, energy security and household costs,” she said.
“The government has chosen a measured and staged approach to these changes, which is critical to keeping the momentum going and making sure Australians understand the policies intended to achieve national goals. A clear pathway gives consumers and businesses confidence to plan, invest and act.”
Meanwhile, Peter Jones, interim executive director of the Motor Trades Association of Australia, said the phased approach strikes the right balance.
“Abrupt changes to incentive settings would have undermined investment confidence across the automotive trades, particularly for small and regional businesses already managing the cost of upgrading workshops, training technicians and meeting new safety requirements for high voltage vehicles,” he added.
“The phased model provides certainty for businesses to plan ahead, while keeping more affordable EVs within reach of everyday Australians through salary packaging and novated leasing.”
Fast-track
Nick Lissikatos, director of finance brokerage Trelos Finance, said it would bring some urgency to the market.
“The decision to retain the EV discount in the near term should keep demand for EV finance relatively strong. The key impact will be urgency,” he said.
“If consumers know the benefit is being scaled back from April 2027, I expect some buyers will bring their decision forward rather than waiting.”
Lissikatos said he is seeing more inquiry around EV finance, but it is still very price-sensitive.
“The strongest demand tends to come from salaried professionals who can access novated lease benefits, business owners looking at vehicle deductions, and borrowers already conscious of fuel costs. The ATO’s EV FBT exemption remains a major driver for salary-packaged EVs, while plug-in hybrids are no longer eligible unless transitional rules apply,” he added.
“My view is that the discount has helped bring EV finance into the mainstream, but long-term adoption will depend less on subsidies and more on affordability, charging access and confidence in resale value.”
[Related: EV finance demand surges, but brokers report mixed conditions]
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