EV FBT exemption wind-back: $75,000 cap from 1 April 2027, draft law still not passed

What was announced and where it stands

Treasurer Jim Chalmers and Climate Change and Energy Minister Chris Bowen announced the phased wind-back on 5 May 2026 as part of the 2026-27 Budget, following the statutory review the 2022 legislation required. The government says the changes will save $1.7 billion over five years from 2025-26. Under the announcement, the full exemption continues until 31 March 2027; from 1 April 2027 it applies in full only to electric cars costing $75,000 or less, with a 25 per cent discount on FBT payable for dearer cars under the luxury car tax threshold; and from 1 April 2029 the 25 per cent discount applies to all eligible cars, described as permanent. ⁴¹

The measure is not yet law. Treasury released exposure draft legislation and explanatory materials in September 2026, with consultation closing on 28 September. As of October 2026 the bill had not been introduced to Parliament, and the ATO's page on the measure states plainly that the measure is not yet law. The final legislation can still change the detail, as happened with the plug-in hybrid cut-off in 2025. ⁶⁷²

The review behind the change found the exemption had cost about $2 billion in its first three years against an original estimate of $205 million over four years, on the NRMA's report of the paper as recounted by EV Roadside. Separately, Drive-Electric reports the exemption had ballooned to an estimated $5.1 billion in forgone revenue, about three times the original forecast, largely because there was no price cap. The government framed the change as focusing the concession on affordable cars, noting there were only two EVs under $40,000 when the scheme began and around ten by May 2026. ⁴⁵

EV Roadside notes the government's rationale included uptake data: in March 2026, 22.9 per cent of new cars sold were electric or plug-in hybrid, up from 1.8 per cent in May 2022, with the strongest uptake outside the inner cities, where the release named Gosford, Kellyville, Werribee and Toowoomba. The release also stated that the import tariff exemption for eligible EVs continues unchanged. ⁴

The three phases and how the discount works

The announced phases run: full exemption until 31 March 2027; from 1 April 2027 to 31 March 2029, full exemption for cars costing $75,000 or less and a 25 per cent discount for cars above that and under the luxury car tax threshold; and from 1 April 2029, the 25 per cent discount for all eligible cars below the threshold. Cars above the threshold were never eligible and stay that way, and plug-in hybrids lost eligibility on 1 April 2025. ⁴⁶

The discounts work through the FBT statutory formula. A full exemption is delivered as a 0 per cent rate, and the 25 per cent discount as a 15 per cent rate instead of the usual 20 per cent of the car's base value, so the car is valued for FBT at three quarters of the usual taxable amount. EV Roadside's summary of the ATO's materials explains that an employer pays FBT, or the employee cancels it with post-tax contributions, on that reduced figure. ⁴⁷

For new commitments from 1 April 2027, the draft drops two of the current eligibility tests, the requirement that the car was first held and used on or after 1 July 2022 and the condition that luxury car tax was never payable. Novated Lease Guide's reading of the draft is that used EVs would instead be tested on their price when the novated lease starts, which would open the discount to older and previously over-threshold used cars priced within the limits, if passed as drafted. ²

The $75,000 line and which cars it catches

The draft ties the $75,000 test to the car's FBT base value, not the drive-away price: generally the GST-inclusive cost price plus dealer delivery and non-business accessories, excluding registration and stamp duty, fixed when the employer first holds the car. Novated Lease Guide notes that Tesla labels this figure as the vehicle subtotal on its order summary. ⁷²

The government's original release did not define which price the $75,000 cap refers to, and thinker.net.au's analysis emphasises that the measurement basis is unresolved while the announcement remains open on the point. A car priced close to the figure could sit either side of the cap depending on the measure used, so buyers in that band should ask a provider which price it has used and why, and check the final law. ¹⁴

On list prices before on-road costs, most best-selling EVs sit well under the line. EV Roadside's dated price table, using makers' list prices as reported by CarExpert and Drive, puts the BYD Atto 3 Dynamic at $41,990, Tesla Model 3 RWD at $54,900, BYD Sealion 7 Premium at $54,990, Tesla Model Y RWD at $58,900, Polestar 2 at $62,400, Hyundai Ioniq 6 at $67,300 and Kia EV6 Air at $72,660, all under the cap. It says the line catches the dual-motor and long-range versions of mid-size SUVs and sedans and much of the European premium range. ³

Grandfathering, and what ends it

The government's release states that existing leases will not be impacted. The draft's test is whether a financially binding commitment to provide the car was made before 1 April 2027, which is the commitment date rather than the delivery or lease start date. Treasury's explanatory materials list events that count as a new commitment and move the car onto whichever rules apply at that date: refinancing, changing lease terms such as term length or residual value, fitting accessories that increase the lease payments, changing employers even within the same corporate group, and re-leasing or extending when the lease ends. ⁷⁶²

EV Roadside draws the parallel with the plug-in hybrid transition of April 2025, when the ATO honoured arrangements with a financially binding commitment but treated a change of employer, a change to the payments or an optional extension as ending that commitment, and had no discretion to extend the date for delivery delays. PwC's tax alert on the 2026 announcement reads the new grandfathering as consistent with the PHEV approach, provided the binding commitment remains unchanged. The draft also warns that ending a lease early and re-signing purely to keep the old treatment may be caught by the general anti-avoidance rules. ⁴⁶

What the exemption has never removed

Even with no FBT payable, an exempt car benefit remains a reportable fringe benefit. Where the taxable value exceeds $2,000 in an FBT year, the employer reports a grossed-up reportable fringe benefits amount on the employee's income statement. It adds no income tax, but the ATO counts it in income tests including the Medicare levy surcharge and private health insurance rebate, Division 293 tax, HELP and other study and training loan repayments, family assistance such as Family Tax Benefit and the Child Care Subsidy, child support, and the super co-contribution. ¹³⁷

The draft would leave the reportable amount regime untouched, and Tax Way's reading of the draft materials is that even where the rate drops to 0 or 15 per cent, the reportable amount is still calculated at the full 20 per cent statutory fraction less post-tax contributions. thinker.net.au notes that this half of the arrangement is unchanged by the phase-down, and that anyone with a study debt or near an income-tested threshold should model the effect before signing. All of the published guides on the change stress it is general information, not financial or tax advice. ⁷¹

One threshold figure needs care because sources differ. Several guides, including Tax Way and Novated Lease Guide, put the fuel-efficient luxury car tax threshold at $91,661 for 2026-27, while Drive-Electric states $91,387. The ATO's own threshold table, cited by thinker.net.au, sets $91,387 for 2025-26 and $91,661 for 2026-27, so the higher figure applies to the current financial year; buyers should confirm the year that matters for their car. ⁷⁵¹