Electric Vehicles & FBT in Australia:

Why Now Might Be the Time to Act 

Electric vehicles are increasingly popular — not just for their environmental benefits, but also because the Australian tax system currently treats them very differently from petrol and diesel cars when it comes to Fringe Benefits Tax (FBT). However, the rules aren’t locked in forever: government reviews and policy tweaks are underway. If you’re thinking about getting an EV for work-related use — especially under a novated lease — now might be the best time to secure the current FBT treatment before changes arrive.  

 

What the Current FBT Rules for Electric Cars Say 

Under current Australian tax law: 

Zero and low-emission electric cars are FBT-exempt 

You don’t pay FBT if you provide private use of an eligible electric car — meaning low-emission or zero-emission vehicles — to an employee. That applies under these conditions: 

– The vehicle is a zero or low emissions vehicle (battery-electric or hydrogen fuel cell) designed to carry less than one tonne and fewer than 9 passengers.  

– The car was first held and first used on or after 1 July 2022.  

– It’s provided to a current employee or their associate.  

– Luxury Car Tax (LCT) has never been payable on its importation or sale (which normally means the car’s cost was below the LCT threshold at the relevant time).  

This exemption also extends to many associated car expenses such as registration, insurance, repairs and even electricity used to charge the vehicle, with no FBT payable on those benefits either.  

 

Plug-In Hybrids Are Being Phased Out of the Exemption 

Originally, plug-in hybrid electric vehicles (PHEVs) were included in the definition of zero or low emissions vehicles. But from 1 April 2025, PHEVs will no longer qualify for the exemption unless there was a binding commitment in place before that date to provide the car to a specific employee.  

That change was signalled well in advance — and it’s a useful example of how policy can shift. It also illustrates one of the key considerations for planning if you’re eyeing an EV under an FBT-exempt arrangement.  

 

A Review of the EV FBT Exemption Is Underway 

The Government has announced (and ATO documents confirm) that it will review the electric car FBT exemption policy by mid-2027 to consider uptake and likely budget impacts.  

This review is not yet complete — and it’s unclear exactly what the outcome will be — but that’s precisely why it could be worth acting sooner rather than later if you’re planning to take advantage of the current rules. 

Commentary from stakeholders suggests that one outcome might be tweaks to eligibility or caps on the value of vehicles that can access the exemption, rather than a wholesale removal of the benefit.  

 

Novated Leasing and FBT 

For many professionals and executives, an EV novated lease is currently one of the most tax-efficient ways to structure their car: 

– Under the current exemption, an EV leased through a novated lease arrangement doesn’t attract FBT for the employer.  

– That can translate into lower overall costs for the employee through salary packaging — sometimes significantly less than buying outright.  

In your own experience with a client, you found a lease worked out around $5,000 cheaper per year compared with buying outright using home equity — a result that will resonate with many business owners and higher income earners. As always, though, this kind of planning needs to be balanced with cash flow realities: don’t buy or lease purely for tax saving if your business can’t handle the payments comfortably. 

 

Why Timing Might Matter:

Policy Change, Budget Impact & Grandfathering 

Here’s the part everyone is talking about: 

🧭 Policy Review and the 2026 Federal Budget 

There’s industry chatter and early reporting that the Government may tweak the EV FBT exemption in the May 2026 Federal Budget — potentially by adjusting eligibility thresholds or tightening benefits.   Now the Budget has been delivered click here to see what changes could be made to the Electric Vehicle FBT carveout. 

That doesn’t mean the exemption will disappear completely — one insider report suggests it’s more likely to be modified to reduce the fiscal cost while still supporting EV adoption.  

📌 Grandfathering of Existing Arrangements 

If a change does happen, it’s widely expected that existing novated lease contracts or binding commitments will be grandfathered, similar to how PHEVs were treated when they were phased out of the exemption. That means if you enter a lease arrangement before any legislative change takes effect, you’d likely retain the current FBT-free treatment for the term of that contract.  

This has important implications for planning: 

– If you intend to enter a novated lease for an EV, getting the contract in place before the policy change could lock in the current exemption.  

– Once a commitment is in place, it can protect you from future changes for the duration of the agreed lease period.  

Practical Takeaways for Business Owners and Advisers 

Here’s how to think about it: 

1. EV FBT exemption is valuable and still in place
   For eligible vehicles, private use won’t attract FBT, and many related costs are exempt too — a big win compared to standard car fringe benefits.
    
2. The exemption isn’t guaranteed forever
   With an official review underway and potential Budget changes looming, the rules could change in the next 12–18 months.
    
3. Act before changes if timing and cash flow permit
   If you’ve been planning to novate lease an EV under the current FBT rules, moving forward now could help you lock in the benefit before any tightening of the policy. 
4. Cash flow still comes first
   Tax planning can improve after-tax returns, but it shouldn’t dictate decisions that leave your business financially stretched — as you rightly pointed out in your client example. 

 

Final Thoughts 

Electric vehicles currently enjoy one of the most generous FBT concessions in Australian tax law — but generous policies can change, especially when they have large fiscal costs and high uptake. 

If you’re considering adding an EV to the fleet, especially under a novated lease or employer-provided arrangement, it’s worth talking to your adviser about timing and commitment contracts to make sure you lock in the best possible outcome under the existing rules.