EV FBT Exemption Ending 2027: What It Means | Velofy

If you drive an electric vehicle through a novated lease, the tax treatment you have been enjoying could change materially from 1 April 2027 — at least if the government's Budget announcement becomes law. The full fringe benefits tax (FBT) exemption that has made EVs one of the most tax-effective salary sacrifice choices in Australia is being phased out in three stages, with the most significant change arriving in April 2029 when the full exemption ends for every price bracket.

For most EV drivers, the decisions to make are straightforward: understand what the announced rules say, check whether your existing lease is grandfathered, and model the cost difference if and when the change takes effect. Here is what you need to know.

What the EV FBT exemption is — and what it costs your income test

The EV FBT exemption was introduced by the Treasury Laws Amendment (Electric Car Discount) Act 2022, applying from 1 July 2022. Under that law, eligible zero or low emissions vehicles below the fuel-efficient Luxury Car Tax (LCT) threshold — $91,661 for 2026-27 — are exempt from fringe benefits tax when provided by an employer to an employee (most commonly via a novated salary sacrifice lease).

Before the exemption, an employer providing a car under a novated lease faced annual FBT calculated on the vehicle's taxable value. For a $65,000 car under the statutory formula, that equates to roughly $12,700 in FBT per year — a significant cost that was typically passed back to the employee, making the arrangement substantially less attractive. The exemption eliminated this cost entirely for eligible EVs, and the saving flowed through to lower novated lease repayments.

There is an important side effect that surprises many EV drivers: even though the employer pays $0 FBT on the vehicle, the grossed-up value of the car benefit is still reported on your income statement as a reportable fringe benefits amount (RFBA). For a $65,000 EV, this RFBA is approximately $24,500. That amount is added to your taxable income for the purposes of the Medicare Levy Surcharge and your HECS repayment income — even though no FBT is actually paid. If your base salary sits just below the MLS threshold, the RFBA can tip you into a surcharge tier. Use Velofy's Medicare Levy Surcharge Calculator to check whether your EV benefit affects your MLS exposure.

Also worth noting: plug-in hybrid vehicles (PHEVs) stopped being eligible for the FBT exemption from 1 April 2025 under existing law. This is a separate and earlier exclusion — not part of the phase-out announced in May 2026. The ATO allows a transitional exception: broadly, where the PHEV was already being provided and exempt before 1 April 2025 and a binding commitment to continue the arrangement predates that date, the exemption can continue for that arrangement. Since 1 July 2025, the fuel-efficient definition has also been tightened to 3.5 litres or less per 100km, further narrowing PHEV eligibility for the LCT threshold. For new arrangements, only fully battery electric vehicles and hydrogen fuel cell vehicles qualify.

What was announced on 5 May 2026 — the three phases

The 2026-27 Federal Budget announced a three-stage phase-out of the full FBT exemption. This is an announced change only — enabling legislation had not passed Parliament at the time this article was written. The framing below uses conditional language because the law has not yet changed.

Fuel-efficient LCT threshold: $91,661 for 2026-27 (AADA, indexed annually). All figures based on announced Budget measures — not yet law as at August 2026.

The grandfathering provision is a critical protection: the government stated that arrangements entered into on or before 31 March 2027 are not affected by the changes for the life of that lease. If your novated lease is already in place, your FBT exemption continues for the remaining term.

What it means for take-home pay — Alex's worked example

Alex is 34, a software engineer in Melbourne earning $95,000. Alex drives a $65,000 battery electric vehicle on a five-year novated lease through their employer — a GST-registered business.

Because the car is under the $75,000 price threshold, it qualifies for the full FBT exemption in both Phase 1 and Phase 2. The first material change for Alex arrives with Phase 3 on 1 April 2029 — or earlier, if Alex enters a new lease after March 2027.

FBT calculated using the statutory formula: base value $65,000 × 20% statutory fraction = $13,000 taxable value; Type 1 gross-up (2.0802) × 47% FBT rate = $12,710/year at full FBT. Phase 3 applies a 25% discount: 75% × $12,710 = $9,533. The additional FBT cost is typically incorporated into the novated lease budget. Calculations are illustrative — actual outcomes depend on your lease structure and employer arrangement.

The $9,533 increase represents the FBT that the employer must pay under Phase 3 at the 25% discount, which novated lease providers incorporate into the overall lease package. Alex's effective annual car cost through the novated lease rises by approximately this amount. Over the remaining three years of a Phase 3 lease, this adds up to roughly $28,600 in additional costs compared to the current law position.

Alex's RFBA position is also worth checking. Under current law, even with $0 FBT payable, the grossed-up value of the car benefit (approximately $24,500 for a $65,000 EV) still appears as RFBA on Alex's income statement. This pushes Alex's income for MLS and HECS repayment purposes to around $119,500 — into Tier 1 MLS territory ($105,001–$123,000) at 1% surcharge. Use Velofy's Medicare Levy Surcharge Calculator to check whether your EV RFBA affects your surcharge tier, and use the Salary Sacrifice Calculator to model how different sacrifice levels interact with your marginal rate.

EV stamp duty is a separate question — current law by state

The FBT phase-out is a federal change. State and territory stamp duty concessions for electric vehicles are separate and remain current law. They vary significantly.

State concessions verified August 2026. Rates change with state budgets — always confirm current rates before purchase.

Use Velofy's car stamp duty calculator to model the stamp duty on a vehicle purchase in your state before committing to a purchase price.

Should you act before April 2027?

The honest answer is: the announced changes are not yet law, and no deadline has legal force until enabling legislation is passed and receives Royal Assent. This is the same pattern as the IAWO permanence announcement — a clear government signal, with law to follow.

What is factual today: the full EV FBT exemption applies under current law for eligible vehicles under the $91,661 fuel-efficient LCT threshold. If you are already in a novated lease arrangement, that arrangement continues under the existing rules until the lease term ends, and the grandfathering policy (as announced) would protect it even if legislation eventually passes.

If you are considering entering a new novated lease, it is worth understanding the three announced phases so you can model the longer-term cost with and without the full exemption. A vehicle under $75,000 would remain fully exempt through at least March 2029 under Phase 2 of the announced rules. From April 2029, the full exemption ends and a 25% FBT discount is all that would apply — adding approximately $795/month to the effective cost of a $65,000 EV compared to today.

For any decision involving specific numbers, your lease term, or your income structure, consult a registered tax agent who can advise on the current legislative status and your personal circumstances. Use Velofy's Tax Calculator to model your overall income tax position.