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If you've been following our recent series on novated leases, this one is for you. The 2026–27 Budget has made changes to the Electric Car Discount, the FBT exemption that has made EV novated leases so attractive over the past few years. Here's what's changing, when, and what it means if you're currently in a lease or considering one.
A quick recap: why EVs through novated leases have been so attractive
Since July 2022, eligible electric vehicles provided through a novated lease have been completely exempt from Fringe Benefits Tax. For most employees, this has meant genuinely significant tax savings, the FBT exemption removed what is typically the largest cost in a novated lease arrangement, making an EV through salary packaging one of the most tax-efficient ways to acquire a car in Australia.
The Government has now reviewed the program, called the Electric Car Discount (ECD), and concluded that the EV market has matured enough that the full exemption is no longer necessary to drive uptake. There are now 59 EV models available under $60,000 and 13 models under $40,000. The program has done its job. The cost to government, however, has grown to the point where it was projected to reach $2.8 billion by 2028–29 without change. Something had to give.
What's changing and when
The changes happen in two stages, with a transitional window in between. The key date and the price of your vehicle determine which rules apply to you.
Stage 1: From 1 April 2027:
The full FBT exemption continues for EVs priced at or under $75,000, but only for arrangements that commence before 1 April 2029.
For EVs priced above $75,000 and up to the fuel-efficient Luxury Car Tax threshold (currently $91,387, this threshold adjusts annually), the full exemption ends on 1 April 2027. From that date, a 25% discount on the standard 20% FBT statutory rate applies, meaning the effective FBT rate becomes 15% rather than 0%. This is a meaningful change for anyone considering a higher-value EV.
Stage 2: From 1 April 2029:
The full FBT exemption ends for all EVs. From this date, a permanent 25% discount on the standard FBT statutory rate applies to all eligible EVs up to the fuel-efficient LCT threshold, giving a permanent 15% statutory rate. EVs above the LCT threshold revert to the standard 20% rate that applies to all other cars.
Existing arrangements are protected:
This is the important transitional rule, any novated lease arrangement already in place retains the FBT rate that applied when that arrangement commenced. So if you're currently in an EV novated lease that started before April 2027, your full FBT exemption is locked in for the life of that arrangement. You don't need to do anything.
What does the 25% discount actually mean in dollar terms?
Under the full exemption, the FBT on an EV novated lease is zero, the entire benefit is tax-free. Under the new 25% discount, the FBT statutory rate drops from 20% to 15%. This means you'll pay FBT on 15% of the car's value per year, rather than nothing.
For a $65,000 EV, the FBT base value under the new rules would be $9,750 per year (15% of $65,000). At the standard FBT rate of 47%, the annual FBT liability would be approximately $4,583. This cost would be factored into your novated lease payments, so the lease becomes more expensive than it is today, but not prohibitively so. The car is still being acquired with pre-tax salary, the running costs are still bundled in, and the arrangement still produces a better outcome than buying outright for most employees.
For comparison, a petrol or diesel vehicle of the same value has always attracted FBT at the 20% statutory rate, so even under the new rules, EVs retain a meaningful advantage over internal combustion engine (ICE) vehicles in a novated lease.
What this means if you're considering a new EV novated lease
The window matters here, and the price of the vehicle you're considering determines your urgency.
If you're looking at an EV under $75,000: The full exemption continues until 1 April 2029 for arrangements that commence before that date. You have time, but not unlimited time. If you're planning to enter a new lease in the next 12-24 months, there's no immediate pressure, but starting before April 2029 locks in the full exemption for the life of that arrangement.
If you're considering an EV over $75,000: The full exemption ends 1 April 2027, that's less than 12 months away. If a higher-value EV is on your radar, the time to act is now. Arrangements commenced before 1 April 2027 retain the 0% FBT rate for the life of the lease. Waiting until after that date costs you the full exemption permanently on that arrangement.
If you're already in an EV novated lease: Nothing changes. Your existing arrangement is fully protected at whatever FBT rate applied when you commenced. You can relax.
The bigger picture
The Government's own review found the Electric Car Discount has been genuinely effective, approximately 78,000 additional EVs were purchased that otherwise wouldn't have been, generating significant fuel cost savings, health benefits from reduced air pollution, and lower emissions. The program achieved what it set out to do.
The transition to a permanent 25% discount rather than full exemption reflects a maturing market rather than a hostile policy shift. EVs are now genuinely mainstream, prices are falling, and the charging network is growing. The tax incentive is being recalibrated rather than removed, and for salary packaging purposes, EVs will still hold a structural advantage over petrol and diesel vehicles well beyond 2029.
For those who read our recent novated lease series: this update sits directly on top of that framework. If you have any questions about how these changes affect your current arrangement or whether a new EV novated lease still makes sense for your situation, please get in touch.
This post is general information based on the 2026-27 Federal Budget papers released 12 May 2026. It does not constitute personal financial or tax advice. FBT calculations depend on individual circumstances including the vehicle value, lease term, and your income. Please speak with us before entering into any new salary packaging arrangement.
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