Proposed EV FBT Changes from April 2027: What Employers and Novated-Lease Drivers Need to Know
Status at 5 September 2026: Proposal only — not yet law. No bill had been introduced when this was written. Proposed transition dates: Under the announced design, current full-discount settings would continue to 31 March 2027; transitional rates would start on 1 April 2027; and the permanent partial discount would start on 1 April 2029. Current legislation continues to govern until Parliament enacts a change. Important protection: Existing arrangements are proposed to retain the discount rate applying when the arrangement commenced.
The EV FBT concession is changing, not disappearing
Eligible electric cars can currently receive a full fringe benefits tax exemption, often called the electric car discount. The Government announced on 5 May 2026, and confirmed in the 2026–27 Budget, a plan to narrow that treatment in stages while keeping a permanent partial concession.
If it goes ahead it will affect fleet costs, salary packaging, novated leases and employees’ reportable fringe benefits.
The proposal had not become law by 5 September 2026. Do not sign a long-term arrangement based only on a headline — check the vehicle, commencement date, value and contract terms.
The proposed EV FBT timeline
Until 31 March 2027
Under the announced transition, the current full FBT discount would continue for eligible electric cars. Existing-law eligibility requirements remain relevant, including the fuel-efficient luxury car tax threshold and the rules governing when the car was first held and used.
Note that plug-in hybrids already lost the exemption for new arrangements from 1 April 2025 under existing law; this proposal is about battery electric and hydrogen fuel-cell cars.
From 1 April 2027 to 31 March 2029
For an eligible electric car provided during this two-year transition:
an eligible EV valued at $75,000 or less would retain the full FBT discount; and
an eligible EV valued above $75,000 but not above the fuel-efficient luxury car tax threshold would receive a 25% FBT discount, implemented by reducing the statutory formula rate from 20% to 15%.
The fuel-efficient vehicle LCT threshold is indexed; the final legislation will determine the relevant valuation and timing test.
From 1 April 2029
Eligible EVs provided from 1 April 2029, up to the fuel-efficient LCT threshold, would receive the permanent 25% discount, using the 15% statutory formula rate. The full exemption for newly provided vehicles would end, including for vehicles at or below $75,000.
Cars above the applicable LCT threshold and cars outside the concession would generally remain subject to the ordinary 20% statutory formula rate, unless another rule applies.
Grandfathering for existing arrangements
The Government says existing arrangements will not be disturbed: the discount rate applying when an arrangement commenced would be locked in for that arrangement.
That is valuable, but “existing arrangement” will need to be read with the final legislation. A refinance, lease extension, employer change, vehicle substitution or material contract variation could create a new arrangement. Employers and employees should seek advice before changing a grandfathered lease.
Do not rush into a vehicle purchase purely to secure a concession. Financing cost, depreciation, insurance, charging, employee contributions and the vehicle’s suitability still matter.
Practical example: an $80,000 EV leased in May 2027
An employer provides an eligible EV valued at $80,000 under a new novated lease commencing in May 2027. Assume the car is below the applicable fuel-efficient LCT threshold and the statutory formula method applies.
Under the ordinary 20% statutory rate, the starting annual taxable value would be $16,000 before adjustments for days available, employee contributions and other rules. Under the proposed 15% rate, it would be $12,000 — a 25% reduction of $4,000 in taxable value.
That is not the employer’s final FBT saving. Gross-up rates, the FBT rate, employee contributions, GST and the precise lease dates all affect the outcome.
By comparison, a qualifying $70,000 EV provided in May 2027 would remain fully discounted during the transition. The same-value car provided from 1 April 2029 would receive the partial 25% discount instead.
Reportable fringe benefits do not disappear
The EV concession can reduce or eliminate the employer’s FBT, but the benefit may still be reportable for the employee. Under the proposal, the reportable fringe benefits amount continues to be calculated as though the 20% statutory formula rate — or the cost-basis method where relevant — applied.
Reportable fringe benefits are not added directly to taxable income, but they can affect income-tested obligations and entitlements, including HELP repayments, Medicare levy surcharge calculations, child support and some family assistance.
That is why a “tax-free EV” can still change an employee’s broader financial position.
What employers should do now
Create a register of EV arrangements showing the vehicle value, first-use date, lease commencement, expected end date and method used to calculate the benefit. Keep evidence that the vehicle met the relevant LCT threshold and other eligibility rules.
Before renewing or varying a lease, confirm whether grandfathering could be affected. Payroll and salary-packaging communications should explain both employer FBT and employee reportable-benefit consequences.
Frequently asked questions
Will an existing eligible EV lease lose its full exemption on 1 April 2027?
The proposal says existing arrangements retain the discount rate applying when they commenced. A later material change may affect that treatment, so have variations reviewed first.
Is a $75,000 EV fully exempt after 1 April 2027?
Under the proposed transitional rules, an eligible EV valued at $75,000 or less would keep the full discount until 31 March 2029. Other eligibility requirements still apply.
Does an FBT-exempt EV have no effect on the employee’s tax affairs?
Not necessarily. A reportable fringe benefits amount may still be calculated and can affect income tests, even when the employer receives a full FBT discount.
Review the vehicle and the agreement together
Regans Accountants can model the FBT, employee contribution and reportable-benefit outcomes before an employer buys an EV or an employee signs a novated lease. Contact us before renewing, refinancing or varying an existing arrangement.
General information only about a proposal, current at 5 September 2026. Speak with us about your own circumstances.
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