How the EV FBT Exemption Works in Australia (2026)

The EV FBT exemption removes fringe benefits tax entirely on eligible electric vehicles provided through a novated lease. For a $65,000 EV, that saves around $6,100 per year in FBT alone - plus the income tax saving from making lease payments out of pre-tax salary. Combined, the benefit can be worth $8,000–$12,000 per year depending on your salary and vehicle price.

Here’s exactly how it works. Browse the full range of qualifying models on our electric vehicles hub, or if you’re deciding between a novated lease and a car loan, see our novated lease vs car loan comparison with detailed cost modelling.

What fringe benefits tax is and why it matters

Fringe benefits tax (FBT) is a tax employers pay on non-cash benefits they provide to employees. A car provided through a novated lease is a fringe benefit. Without the exemption, the employer pays FBT on the vehicle - and that cost flows back to the employee through higher lease payments.

The FBT rate in Australia is 47%. Under the statutory formula method, the taxable value of a car fringe benefit is 20% of the vehicle’s base value per year. So on a $65,000 car, the annual FBT liability is $65,000 × 20% × 47% = $6,110.

The exemption sets this liability to zero for eligible electric vehicles.

Which vehicles qualify

The ATO sets three conditions for a vehicle to qualify:

1. Vehicle type. The car must be a battery electric vehicle (BEV) or a hydrogen fuel cell electric vehicle. Plug-in hybrids (PHEVs) are not eligible. PHEVs were removed from the exemption from 1 April 2025.

2. First held date. The vehicle must have been first held and used on or after 1 July 2022. Vehicles purchased before that date do not qualify regardless of type.

3. Price cap. The vehicle’s GST-inclusive value must not have exceeded the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles at the time of first retail sale. For 2025–26, that threshold is $91,387. The price used is the first retail sale price - not a discounted price you may have negotiated later.

All three conditions must be met. A $95,000 BEV does not qualify even though it is a battery electric vehicle.

How the maths works in practice

Take a Tesla Model 3 at $58,900 before on-road costs. Assume drive-away is $62,000.

• Annual FBT that would otherwise apply: $62,000 × 20% × 47% = $5,828
• Under the exemption: $0
• Annual FBT saving: $5,828

On top of that, novated lease payments are made from pre-tax salary. If you earn $120,000 and your annual lease payment is $13,500, the income tax saving at a 34.5% marginal rate is approximately $4,658 per year.

Total annual benefit: roughly $10,486. Over a five-year lease, that’s $52,430 - before accounting for the GST saving on running costs that also flows through a novated lease.

Use the FBT savings calculator to run your own numbers.

How a novated lease works

A novated lease is a three-way arrangement between you, your employer, and a finance company. Your employer leases the vehicle on your behalf and deducts the payments from your pre-tax salary. You use the vehicle as if it were your own.

The key steps:

1. You choose an eligible vehicle and get a quote from a novated lease provider (SG Fleet, Maxxia, Fleetcare, and others operate in Australia).
2. Your employer agrees to the arrangement and signs the novation agreement.
3. Payments are deducted from your pre-tax salary each pay cycle.
4. At the end of the lease term (typically three to five years), you can pay the residual value to own the car, re-lease it, or hand it back.

The employer technically pays FBT on the benefit - but for eligible EVs, the FBT is zero, so there is no cost to pass on.

The PHEV removal - what happened

PHEVs were originally included in the exemption from 1 July 2022. The government removed them from 1 April 2025, citing the policy intent to support zero-emission vehicles rather than vehicles that still run on petrol part of the time.

PHEVs ordered under a binding contract before 1 April 2025 were protected under transitional rules until 31 March 2027. Any PHEV first held on or after 1 April 2025 is fully subject to FBT at the standard rate.

The removal had an immediate pricing effect. Several PHEV brands cut drive-away prices significantly after April 2025 to compensate for the lost FBT benefit. The Cupra Formentor VZe, for example, dropped by over $20,000.

The price cap in detail

The $91,387 threshold is the LCT threshold for fuel-efficient vehicles in 2025–26. This threshold adjusts annually in line with the motor vehicle purchase sub-group of the CPI.

The price used for the cap is the GST-inclusive value of the car at first retail sale - not the price you negotiate with the dealer. If a vehicle was listed at $95,000 and sold for $88,000 through negotiation, it still fails the cap because the first retail sale price exceeded $91,387.

Most popular Australian EVs sit under the threshold:

Model	Drive-away (approx.)	Qualifies
BYD Atto 1	from $23,990	Yes
BYD Atto 3	from ~$42,000	Yes
BYD Seal	from ~$49,000	Yes
MG ZS EV	from ~$37,000	Yes
Tesla Model 3	from ~$57,000	Yes
Tesla Model Y RWD	from ~$61,500	Yes
Tesla Model Y Long Range	from ~$72,000	Yes
Hyundai IONIQ 5 (63 kWh)	from ~$72,500	Yes
BMW iX1	from ~$88,000	Yes
Hyundai IONIQ 9	~$123,000	No

Prices are approximate drive-away as at March 2026. Verify with the dealer before purchasing.

The exemption is under review

In December 2025, the government announced a review of the EV FBT exemption. The review is examining whether the policy is achieving its intended outcomes and whether changes are needed to the price cap or vehicle eligibility criteria.

Revised terms are expected by mid-2027. The exemption remains fully in force until any legislative changes take effect. Vehicles already under a novated lease are unlikely to be affected retroactively, based on standard legislative practice - but this is not confirmed.

If you are considering a novated lease, the exemption is available now and the saving is real. Whether to wait for the review outcome depends on your individual circumstances and how much longer you can defer the decision.

What the exemption does not cover

A few things the FBT exemption does not apply to:

• Sole traders and partnerships. FBT applies only to employer-employee arrangements. If you are self-employed with no employees, the exemption does not apply to your personal vehicle.
• Cars bought outright. Buying a car personally with post-tax income does not involve a fringe benefit, so FBT is irrelevant. The exemption only matters when a vehicle is provided as a benefit through an employer.
• Vehicles over the price cap. No exemption regardless of vehicle type if the first retail sale price exceeded $91,387.
• Running cost GST. The novated lease GST benefit on fuel, registration, servicing, and tyres is a separate saving - not part of the FBT exemption itself.

How to access it

You need an employer willing to offer novated leasing. Most medium and large Australian employers do. If yours does not currently offer it, it is worth asking - the employer has no direct cost when the vehicle is an eligible EV.

Steps:

1. Confirm your employer offers novated leasing (HR or payroll can confirm).
2. Get quotes from two or three novated lease providers. Costs vary.
3. Choose a vehicle under $91,387 drive-away that is a BEV.
4. Review the full cost comparison - lease payments, residual value, and what happens at end of term.

The FBT savings calculator gives you an estimate based on your salary and the vehicle price before you speak to a provider.

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Based on average Australian electricity rates, charging an FBT-exempt EV at home costs approximately 4–5 cents per km — a fraction of petrol running costs, making the running cost savings as compelling as the tax savings. See our EV charging cost guide for a full breakdown by tariff type and state.

State-level incentives stack on top of the FBT exemption. Queensland buyers benefit from stamp duty exemptions on top of FBT savings — see the Queensland EV rebates page. NSW offers additional EV incentives covered on the NSW EV rebates page, and Victorian buyers can check the VIC EV rebates page. If you’re also weighing up home battery storage, the solar battery rebate guide covers how battery rebates can stack with EV incentives for households doing both.

Sources: Australian Taxation Office (ATO) - Electric Cars FBT Exemption; Electric Vehicle Council State of EVs Australia 2025; AADA LCT Threshold Update 2025–26. Data current as at March 2026.