Is the EV FBT exemption about to change? The 2026 government review explained
The Australian Government is conducting a formal review of the Electric Car Discount — the FBT exemption that has made EV novated leases one of the most powerful tax benefits available to employees. The review was announced in December 2025, submissions closed in February 2026, and a final report is due by mid-2027. Here is exactly what is under review, what could change, what it means for existing leases, and how to think about the decision right now.
Update — October 2026
The review fed into the 2026–27 Budget, which announced a phased change from 1 April 2027. Draft legislation followed in September 2026 but is not yet law. For what changes and when, see our 2026 Budget guide.
Updated — Budget 2026-27 confirms changes (13 May 2026)
The government has confirmed the changes recommended by the Electric Car Discount review. The full FBT exemption will phase out in two stages: 1 April 2027 for EVs over $75,000, and 1 April 2029 for all EVs. Existing leases are fully grandfathered. See our full budget breakdown with worked examples →
1. What is the Electric Car Discount review?
In December 2025, the Australian Government announced a statutory review of the Electric Car Discount — the policy that has exempted eligible EVs from Fringe Benefits Tax since 1 July 2022. The review is being conducted jointly by the Australian Centre for Evaluation (within Treasury) and the Department of Climate Change, Energy, the Environment and Water.
| 1 July 2022 | Electric Car Discount introduced. BEVs, PHEVs, and hydrogen vehicles under the LCT threshold exempted from FBT. |
|---|---|
| 1 April 2025 | PHEV FBT exemption ended. PHEVs now fully subject to FBT on new arrangements. Existing binding leases grandfathered. |
| December 2025 | Government announces formal statutory review of the Electric Car Discount. Public submissions open. |
| 6 February 2026 | Public submissions close. Industry bodies, employers, employees, and advocates all submitted feedback. |
| April 2026 | Review in progress. Exemption fully in force. |
| 12 May 2026 — Budget night | Government confirms EV FBT changes in 2026-27 Budget. Three-phase transition announced. Full exemption ends for $75k+ EVs from 1 April 2027, all EVs from 1 April 2029. Existing leases grandfathered. |
| September 2026 — now | Treasury releases draft legislation for the phased changes; consultation closed 28 September 2026. Not yet law as at October 2026 — the full exemption still applies. |
| 1 April 2027 | Phase 2 begins. Full exemption ends for EVs between $75,000 and $91,661. These vehicles receive 25% FBT discount. EVs under $75,000 retain full exemption. |
2. What is currently exempt — a quick reminder
| Vehicle type | FBT exempt? | Threshold (FY2026-27) |
|---|---|---|
| Battery electric vehicle (BEV) | Yes — fully exempt | Under $91,661 |
| Hydrogen fuel cell vehicle | Yes — fully exempt | Under $91,661 |
| PHEV (new arrangements from April 2025) | No — full FBT applies | N/A |
| PHEV (pre-April 2025 binding lease) | Grandfathered until lease ends | Original terms apply |
| Standard hybrid (non plug-in) | No — never was exempt | N/A |
| Petrol / diesel | No — full FBT applies | N/A |
For an eligible BEV, the saving is substantial. FBT under the statutory method on a $70,000 vehicle would be approximately $13,720 per year — all of which is eliminated under the current exemption. On top of this, salary sacrifice still reduces your income tax. The combined annual saving can exceed $15,000 for employees in higher tax brackets.
3. Why the government is reviewing it
The Electric Car Discount was always described as a time-limited measure to accelerate EV adoption during the early, high-cost phase of the transition. Three key things have changed since 2022:
- EV adoption has surged. Market share grew from under 2% in 2022 to approximately 12% by late 2025. A record 103,270 EVs were sold in Australia in 2025. The market is no longer nascent.
- The cost has grown significantly. Projected cost to government revenue is estimated at $2.8 billion in the 2028-29 financial year alone — well above original forecasts.
- EV prices have fallen. Several eligible BEV models are now available under $40,000, making EV-to-ICE price parity much closer than in 2022. The argument that the exemption is needed to offset higher purchase costs has weakened.
Context
Nearly 100,000 Australians had accessed the FBT exemption by late 2025 — the majority through salary-packaged novated leases. The salary packaging industry has grown significantly around the policy, and industry groups have been vocal in submissions advocating for its continuation.
4. What could actually change
No changes have been announced, and any changes would require legislation to pass parliament after the review reports. Based on the review's terms of reference and analyst commentary, the most commonly discussed scenarios are:
| Lower the LCT threshold | e.g. reduce from $91,661 to $60,000 — fewer vehicles qualify |
|---|---|
| Phase down the exemption % | e.g. reduce from 100% exempt to 50% exempt over time |
| Income test | Limit access to lower-income earners; phase out at higher salaries |
| Sunset the exemption entirely | End date applied (considered less likely, would impact adoption targets) |
| Keep as-is | No change — review confirms policy achieving its goals |
Industry analysts widely note that full removal is the least likely outcome, given Australia's EV adoption targets and the political cost of removing a benefit already used by ~100,000 Australians. The most likely change, if any, is a tighter threshold or a phased reduction.
Important
Speculation about outcomes is just that — speculation. The ATO and government have confirmed only that the review is taking place and that a report is expected by mid-2027. Nothing is decided. Do not make financial decisions based on what commentators think might happen.
5. Will existing leases be affected?
This is the question most people in an active or about-to-start novated lease are asking. The honest answer is: we do not know for certain — but the evidence strongly suggests existing leases will be grandfathered.
Australian tax law has a strong convention of grandfathering existing arrangements when benefits are removed or reduced. The most recent example is directly relevant:
6. The PHEV sunset — what it tells us
When the PHEV FBT exemption was removed on 1 April 2025, the ATO specifically provided that arrangements entered into before that date under a financially binding commitment could continue under the original terms for the life of the lease. Only new arrangements after the cut-off lost the benefit.
This is the precedent. It is the most likely template for any future changes to the BEV exemption — a cut-off date after which new arrangements no longer qualify, while existing leases run to completion. This is not guaranteed, but it is consistent with how Australian tax transitions are handled.
What this means in practice
If you enter a novated lease for an eligible BEV in 2026 — before any changes are legislated — you are very likely to retain the exemption for the full term of your lease, based on the PHEV precedent. This is one reason why some financial commentators describe 2026 as a good year to lock in a 3–5 year lease. General information only — not financial advice.
7. Should you act before the review concludes?
This depends entirely on your personal situation. Here is a practical framework:
Act sooner if:
- You are already intending to change vehicles in the next 1–2 years and have been considering an EV
- You are a PAYG employee earning $80,000+ with a participating employer
- The EV you want is below $91,661 and qualifies for the current exemption
- Your employment is stable enough to support a 3–5 year lease commitment
Wait or reconsider if:
- Your employment situation is uncertain — the risk of a lease reverting to you personally matters more here than the review timing
- You are not confident an EV suits your driving situation (range, charging access)
- The vehicle you want is above $91,661 — the exemption doesn't apply regardless
- You earn below $60,000 — the salary sacrifice saving is modest and may not justify the lease structure
The most important thing
Run your actual numbers. The right decision depends on your salary, your vehicle, your employer's arrangement, and how long you plan to keep the car — not on speculation about policy. A $72,000 EV for a $100,000 salary employee looks very different to a $45,000 EV for a $65,000 salary employee. Model it before you decide.
8. Model your numbers with the Veercal calculator
The Veercal novated lease calculator shows your exact tax saving, FBT position, take-home pay impact, and total cost — step by step. Toggle EV mode to apply the current FBT exemption and see how your out-of-pocket compares to a personal loan or cash purchase for the same vehicle.
Common questions
Is the EV FBT exemption ending in Australia?
Not yet. The 2026–27 Budget announced a phase-down: from 1 April 2027, new leases on EVs over $75,000 would get a 25% FBT discount instead of the full exemption, and from 1 April 2029 all EVs would get the 25% discount. Draft legislation was released in September 2026 but is not yet law. Until it passes, the exemption remains fully in force for eligible battery electric vehicles under $91,661, and existing leases are not affected.
What is the 2026 EV FBT exemption review about?
The Australian Centre for Evaluation (Treasury) and the Department of Climate Change are reviewing whether the Electric Car Discount — which removes FBT on eligible EVs under novated leases — is achieving its intended goals, and whether it should continue, be modified, or be phased out. Public submissions closed 6 February 2026. The report is due by mid-2027.
Will my existing EV novated lease be affected by any changes?
Based on the PHEV precedent from April 2025, existing leases entered into before any legislative change are very likely to be grandfathered — meaning they continue under the original terms for the duration of the lease. This is not confirmed, but it is the standard approach in Australian tax law when benefits are wound back.
What could change as a result of the EV FBT exemption review?
Analysts suggest the most likely outcomes are: lowering the LCT threshold (making fewer vehicles eligible), reducing the exemption percentage rather than removing it entirely, or introducing a tiered system based on vehicle emissions. Full removal is considered unlikely given the policy's role in driving EV adoption, but no outcome has been confirmed.
Should I get an EV novated lease now before the review?
The full exemption is in place now and locking in a 3-5 year lease in 2026 is likely to insulate you from changes following the 2027 review, based on how the PHEV sunset was handled. Whether a novated lease is right for you depends on your salary, vehicle, employer, and circumstances. Use the Veercal calculator to model your specific numbers. General information only — not financial advice.
General information only — not financial advice. This article summarises publicly available government and ATO guidance as at October 2026. The 2026-27 Budget confirmed EV FBT changes on 12 May 2026. Budget announcements are subject to legislation passing parliament before taking effect. Tax policy and ATO rates can change. Veercal does not hold an Australian Financial Services Licence. Always consult a licensed financial adviser or registered tax agent before making decisions about novated leases, salary packaging, or vehicle purchases.