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.

One important update before you read on: in the May 2026 Budget the government announced the exemption will be wound back from 2027. It is still available in full now, and leases signed while it applies are protected, so the timing of a decision matters. The full schedule is set out below.

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. For the complete overview, eligibility, savings by salary and the traps, see our EV novated lease Australia hub.

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’s electric car exemption rules set 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 2026–27 that threshold is $91,661, up from $91,387 in 2025–26. The threshold that applies is the one in force when the car was first sold. 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 32% effective marginal rate (30% plus 2% Medicare under Stage 3 rates) is approximately $4,320 per year.

Total annual benefit: roughly $10,148. Over a five-year lease, that’s $50,740 - 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 that were already exempt before 1 April 2025 and under a financially binding commitment keep the exemption for the duration of that commitment. Any PHEV first held on or after 1 April 2025, without that prior commitment, 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 $91,661 threshold is the LCT threshold for fuel-efficient vehicles in 2026–27, up from $91,387 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 model’s value at first retail sale is $95,000, it fails the cap even if you later negotiate a lower drive-away price, because the test looks at the retail value rather than your discount.

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 July 2026. Verify with the dealer before purchasing.

The exemption is being wound back

The exemption is no longer open-ended. The government ran a statutory review of the scheme through 2025, and in the May 2026 Budget it announced the outcome: the EV FBT exemption will be phased out on a set timeline.

• Until 31 March 2027: the full exemption continues unchanged for eligible EVs.
• 1 April 2027 to 31 March 2029: EVs priced at $75,000 or less keep the full concession. EVs above $75,000 but under the LCT threshold move to a 25% FBT discount instead of a full exemption.
• From 1 April 2029: all eligible EVs under the LCT threshold get the 25% discount, and the full exemption ends.

These changes were announced in the 2026–27 Budget and are being legislated. The schedule reflects government policy rather than enacted law, so the fine detail can still shift as the bill passes.

Two things matter if you are deciding now. First, existing leases are grandfathered: the government has stated that leases already in place will not be affected, so a novated lease signed while the full exemption applies keeps that treatment for its term. The precise scope will be set by the final legislation. Second, that makes the window to 31 March 2027 the point of maximum benefit for a new lease, particularly on an EV priced above $75,000.

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 $91,661.
• 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 $91,661 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.

---

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 incentives are now a minor factor. Most state EV purchase rebates have closed, and what remains is mostly concessional duty or registration rather than cash. Our EV rebates and novated leasing guide covers what still stacks in each state and who actually benefits. If you’re also weighing up home battery storage, the solar battery rebate guide covers how battery rebates work for households doing both.

Sources: Australian Taxation Office (ATO) - Electric Cars FBT Exemption; Treasury - Statutory Review of the Electric Car Discount (May 2026); AADA LCT Threshold Update 2026–27. Data current as at July 2026.