The Australian Government has announced a significant recalibration of its Electric Car Discount (ECD) scheme, phasing back the Fringe Benefits Tax (FBT) exemption for electric vehicles (EVs) from 2027 while extending its full application for another year. The policy adjustment, revealed in a joint statement by Treasurer Jim Chalmers and Minister for Climate Change and Energy Chris Bowen on May 4-5, 2026, aims to deliver a “fairer and more financially sustainable” tax treatment for EVs as the market matures.
Currently, EVs provided by employers to employees under a salary packaging arrangement are fully exempt from FBT, provided they fall below the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles, which presently stands at $91,387. This full exemption will remain in place until March 31, 2027.
However, from April 1, 2027, the policy will undergo a staged reduction, directly impacting the financial incentives for higher-priced EVs and signalling a shift towards encouraging more affordable models in the Australian market.
Phased Changes to the Electric Car Discount FBT Exemption
The new framework introduces three distinct phases for the FBT exemption:
| Period | EV Price Threshold (before on-road costs) | FBT Exemption Level |
|---|---|---|
| Until March 31, 2027 | Below LCT threshold ($91,387) | Full Exemption |
| April 1, 2027 – March 31, 2029 | $75,000 or less | Full Exemption |
| Above $75,000 but below LCT threshold | 25% Discount | |
| From April 1, 2029 | Below LCT threshold ($91,387) | 25% Discount |
Crucially, existing novated lease agreements entered into before these changes take effect will be grandfathered, meaning buyers will retain their current tax benefits for the life of their contract, potentially extending well into the 2030s. This provision is expected to drive a short-term surge in demand as consumers look to lock in the existing full exemption.
Additionally, eligible EVs will continue to be exempt from import duties, irrespective of the FBT changes.
Rationale Behind the Policy Shift
The government’s decision stems from a statutory review of the ECD, which found the scheme highly successful in spurring EV uptake, contributing to an estimated 64,000 additional EV sales between 2022 and 2025. However, the unexpected popularity led to significant cost blowouts. Initially projected to cost $90 million over seven years, the scheme’s annual tax expenditure is now forecast to reach $1.35 billion in 2025-26, with projections rising to $3 billion by 2028-29 under previous settings.
This phased tightening is expected to save the federal budget $1.7 billion over four years from the 2026-27 budget.
“The electric car market has rapidly matured since we came to Government, and these changes will ensure our tax settings are still suitable,” the ministers stated. “There were only two EVs under $40,000 – now there are around 10 and, for the first time, one model under $30,000.”
The government believes the maturing market, coupled with the introduction of the New Vehicle Efficiency Standard (NVES), has already significantly increased the availability of affordable EV models.
Industry Reaction and Market Impact
The Electric Vehicle Council (EVC) acknowledged the extension as good news for Australians, allowing them to continue saving on fuel bills. EVC chief executive Julie Delvecchio noted, “The Albanese Government and Minister Bowen have listened and shown they understand EVs are a cost-of-living measure.” The National Automotive Leasing and Salary Packaging Association (NALSPA) also supported the one-year extension of current settings to maintain market momentum.
However, some groups expressed concern about the long-term implications. The Climate Council’s Amanda McKenzie suggested that the 2029 changes could “put the brakes on progress,” making it harder for Australians to transition away from petrol vehicles.
The policy shift is likely to influence purchasing decisions, potentially steering buyers towards more cost-effective EVs to retain full FBT benefits. This aligns with recent market trends, where cheaper electric vehicles are gaining significant traction. In April 2026, electric vehicles achieved a record 16.4 per cent share of new car sales in Australia, a 157 per cent increase year-on-year.
Chinese brands, in particular, are driving this affordability push. BYD surged to become the second-highest selling brand overall in April, with its BYD Sealion 7 topping EV sales with 1,780 deliveries, surpassing the Tesla Model Y. Other affordable options like the BYD Atto 2 (from $35,337 driveaway in NSW) and the MG4 EV Urban (from $31,990) demonstrate the growing range of EVs below the $75,000 threshold.
For businesses and individuals considering a transition to electric vehicles, understanding these evolving incentives is critical. The continued FBT exemption, albeit with future adjustments, still presents a compelling financial argument for acquiring an EV via salary packaging. For those exploring their options, a comprehensive guide to the Cheapest Electric Cars Available in Australia in 2026 can provide valuable insights into models that will continue to benefit most from the incentives. Businesses planning larger-scale electrification should also consider the broader infrastructure picture, including the How Much Does an EV Home Charger Cost to Install in Australia 2026? A Guide to Types, Prices & Installation and how this integrates into fleet operations, as outlined in guides like How to Prepare Your Australian Fleet Depot for Megawatt Electric Truck Charging in 2026: A Complete Guide.
The government’s move reflects a maturing EV market, where targeted incentives are replacing broad-brush support. While the full FBT exemption will eventually become more selective, the commitment to some level of tax relief underscores the ongoing federal push towards decarbonising Australia’s transport sector.