The Federal Budget delivered on 12 May 2026 confirmed what the government's Electric Car Discount review recommended: the full EV FBT exemption will phase out by April 2029. Here is exactly what changes, when it changes, how the numbers shift at each deadline, and what it means if you are considering an EV novated lease.
Existing leases are safe. Any novated lease arrangement already in place is fully grandfathered — the rules that applied when it started remain for the life of that arrangement.
Two deadlines matter. 1 April 2027 (for EVs over $75,000) and 1 April 2029 (for all EVs). Arrangements commenced before each deadline lock in the current full exemption.
The $20,000 instant asset write-off is now permanent from 1 July 2026 — relevant for sole traders buying eligible business vehicles.
The Treasurer delivered the 2026–27 Federal Budget on 12 May 2026. The Electric Car Discount review — announced in December 2025 and accepted by the government — recommended transitioning to a permanent but reduced 25 per cent FBT discount. The Budget confirmed this recommendation and set the transition schedule.
The key change from the official budget website:
"The Government will transition the arrangements to support electric cars to a permanent 25 per cent fringe benefits tax (FBT) discount, for eligible electric cars over $75,000 from 1 April 2027 and for all eligible electric cars from 1 April 2029. Electric cars costing up to $75,000 will continue to receive a full FBT exemption provided the fringe benefit arrangement commences before 1 April 2029."
The change is estimated to save the Budget $1.7 billion over five years. The government notes the EV market has matured significantly since 2022 — market share grew from under 2% to nearly 23% by March 2026 — and that the cost of the scheme had grown to approximately 15 times its original forecast.
If you are considering an EV priced under $75,000 — which now includes a growing number of models including the BYD Atto 3, BYD Seal, MG4, Hyundai Kona Electric, and base Tesla Model Y — nothing changes until 1 April 2029. You have until that date to commence a novated lease arrangement and lock in the full exemption for the duration of that lease.
The government noted this directly in the Budget: there are now around 10 EV models under $40,000 and one model under $30,000. Focusing the full exemption on sub-$75,000 vehicles is deliberate — it targets the benefit toward more affordable, accessible EVs.
You have until 31 March 2029 — nearly three years — to commence a novated lease and lock in the full FBT exemption for the term of that lease. A 3-year lease commenced on 31 March 2029 continues under the full exemption until 2032.
This is where the change is most urgent. If you are considering an EV in the $75,001–$91,387 range — which includes models like the Tesla Model 3 Performance, Tesla Model Y Long Range AWD, Polestar 4, BMW iX1, and similar — you have until 31 March 2027 to commence your novated lease arrangement under the full exemption.
After that date, any new arrangement on these vehicles is subject to the 25% FBT discount rather than full exemption. This means a post-tax ECM contribution is required for the first time on these vehicles.
You have approximately 10.5 months from the date of this article — until 31 March 2027 — to commence a novated lease on an EV priced between $75,000 and $91,387 under the full FBT exemption. A one-day difference (31 March vs 1 April 2027) could mean over $12,000 per year in additional after-tax cost for some vehicles.
The 25% FBT discount changes the effective statutory rate from 20% to 15%. Under the Employee Contribution Method (ECM), the employee's monthly post-tax contribution equals the taxable value: base price × effective rate ÷ 12.
Under Phase 1 (full exemption): ECM = $0 — all vehicle and running costs funded pre-tax. Under Phase 2/3 (25% discount): ECM = base price × 15% ÷ 12 per month.
The government has confirmed grandfathering explicitly in the Budget and the joint ministerial media release. Existing arrangements will not be affected. The rules in place when a fringe benefit arrangement commenced apply for the life of that arrangement.
| When lease commenced | Vehicle price | FBT treatment — now and ongoing |
|---|---|---|
| Before 1 April 2027 | Any eligible EV under $91,387 | ✓ Full exemption for life of arrangement |
| 1 April 2027 – 31 March 2029 | Under $75,000 | ✓ Full exemption for life of arrangement |
| 1 April 2027 – 31 March 2029 | $75,001–$91,387 | ◑ 25% discount (ECM = base × 15% / 12) |
| From 1 April 2029 | Any eligible EV under $91,387 | ◑ 25% discount (ECM = base × 15% / 12) |
This grandfathering is consistent with how the PHEV exemption was handled in April 2025, where existing binding arrangements continued under the original terms.
A separate but relevant change for sole traders and small businesses: the $20,000 instant asset write-off has been made permanent from 1 July 2026. Previously renewed annually, it now applies indefinitely for businesses with aggregated turnover under $10 million.
For vehicle purchases, this is most relevant for commercial vehicles priced under $20,000 (utes, vans, tools). Most passenger EVs significantly exceed this threshold. Sole traders buying eligible vehicles costing under $20,000 can now deduct the full cost immediately with confidence the write-off will not expire.
Fuel excise was halved for three months as emergency relief during the global oil supply disruption — a temporary cost-of-living measure, not a permanent structural change. The LCT thresholds were not changed in this budget. The EU-Australia FTA proposed $120,000 fuel-efficient threshold has still not been legislated.
The transition schedule creates two clear decision windows depending on your vehicle price:
You have approximately 10 months — until 31 March 2027. A 3-year lease commencing on 31 March 2027 locks in full exemption until 2030, saving approximately $12,300 per year on an $82,000 vehicle compared to waiting one more day. This is a real, quantifiable benefit. Whether a novated lease makes sense for your situation depends on your salary, your employer, your employment stability, and the vehicle — model those numbers in the Veercal calculator before deciding.
You have until 31 March 2029 — no urgency, but still worth acting before then. The market for affordable EVs is growing fast; there are now around 10 models under $40,000. The full exemption on sub-$75k vehicles is a significant benefit and worth using before it sunsets in 2029.
Enter your salary, vehicle price, and lease term — the Veercal novated calculator applies the current full FBT exemption and shows your take-home pay impact, monthly cost, and total saving versus a personal loan or cash purchase.
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