EV benefits remain attractive, but the full exemption is being wound back
Electric vehicles have become a popular employee benefit, particularly through novated leases and employer-provided vehicles. For many employees, the existing fringe benefits tax concession has made an EV significantly more affordable. For employers, it has also been a useful way to offer a valuable benefit without necessarily increasing cash salary.
The 2026-27 Federal Budget proposes to adjust the electric car discount and transition the current arrangements to a more limited, permanent concession. From 1 April 2029, a permanent 25% FBT discount will apply to eligible electric cars valued up to and including the fuel-efficient luxury car tax threshold. This will be implemented through a 15% rate in the FBT statutory formula.
The key dates employers need to know
The transition rules are important. The Budget proposes that all eligible electric cars will retain the FBT discount rate that applied when the arrangement commenced. Electric cars valued up to and including $75,000 that are provided before 1 April 2029 will continue to be eligible for a 100% FBT discount, implemented through a 0% statutory formula rate.
For electric cars valued above $75,000 and up to the fuel-efficient luxury car tax threshold, the position changes earlier. If those cars are provided between 1 April 2027 and 1 April 2029, they will be eligible for only a 25% FBT discount, implemented through a 15% statutory formula rate. All other cars, including electric cars costing more than the fuel-efficient luxury car tax threshold, will continue to be subject to the existing 20% statutory formula rate.
In simple terms, the most generous treatment is preserved for more affordable EVs provided before 1 April 2029. Higher-value EVs move to the reduced discount from 1 April 2027.
What this means for novated leases
For employees considering a novated lease, timing matters. An eligible EV under $75,000 provided before 1 April 2029 may continue to receive the full FBT discount. This could make salary packaging an EV more attractive than waiting until after the transition period.
However, employees should not focus on FBT alone. The total cost should still include lease payments, electricity, insurance, servicing, registration, residual value, charging setup and any reportable fringe benefits impact. The Budget papers confirm that reportable fringe benefits will continue to be determined for eligible electric cars as if a 20% statutory formula rate or cost basis method applied.
That means an arrangement can be FBT-concessional but still affect other income-tested obligations or entitlements.
What this means for employers
Employers should review EV policies before entering into new arrangements. This is particularly important where staff expect the full FBT exemption to continue indefinitely.
For vehicles under $75,000, the full discount may remain available where the car is provided before 1 April 2029. For more expensive EVs, the reduced concession from 1 April 2027 may change the business case. For vehicles above the fuel-efficient luxury car tax threshold, ordinary FBT treatment continues.
Employers should also review fleet procurement timelines. A vehicle ordered before a deadline may not necessarily be “provided” before that deadline. The exact timing of the arrangement, delivery and availability for private use may become important.
Be careful with plug-in hybrids
Plug-in hybrid electric vehicles need separate attention. Since 1 April 2025, plug-in hybrid electric vehicles are generally no longer considered zero or low emissions vehicles for FBT purposes and are not eligible for the electric car exemption, except in limited transitional circumstances. The ATO guidance notes that an exemption can continue only where the use was exempt before 1 April 2025 and there was a financially binding commitment to continue providing private use of the vehicle on and after that date.
This is a common trap. A business may think it is providing an “electric” vehicle, but a plug-in hybrid may not receive the same FBT treatment as a battery electric vehicle.
Record keeping still matters
Even where an EV receives concessional FBT treatment, employers still need appropriate records. This includes records supporting the vehicle’s value, eligibility, when it was provided, the employee arrangement, associated running costs and how any reportable fringe benefits amount has been calculated.
Where home charging costs are reimbursed, businesses also need a method for determining electricity usage. EVs can simplify FBT in some ways, but they do not remove the need for documentation.
Should small businesses still offer EVs?
For many small businesses, the answer may still be yes. EVs can be a practical staff attraction and retention tool, particularly for employees who would otherwise purchase or lease a car personally. The concession is being reduced, not removed entirely.
However, employers should model the after-tax cost before making promises to employees. The value of the concession depends on the car’s price, the timing of the arrangement, the employee’s salary package, and whether the vehicle is an eligible EV.
The main action point is to review arrangements before the key dates. EVs can still be tax-effective, but the full FBT exemption will no longer be a permanent feature of the system.
Note: The changes discussed in this article are proposed Budget measures only. At the time of publishing, they still need to pass through Parliament before becoming law.
