Highlights

  • Treasury's consultation, titled "Sustainable fringe benefits tax treatment of electric cars", ran from 10 to 28 September 2026.
  • From 1 April 2027, the 25% discount would apply to eligible EVs valued above $75,000.
  • Treasury says EVs valued at or below $75,000 keep the 100% exemption if the commitment is made before 1 April 2029.
  • Treasurer Jim Chalmers listed the EV changes in an 11 September release as part of a package of exposure draft legislation.

A proposed overhaul of electric vehicle tax concessions places the timing and price of novated leases under scrutiny.

What the draft law proposes

The current concession, in place for eligible electric cars since 1 July 2022, means employers pay no fringe benefits tax (FBT) on an eligible EV provided to an employee, including through a novated lease. Treasury's consultation, titled "Sustainable fringe benefits tax treatment of electric cars", ran from 10 to 28 September 2026. It proposes replacing the full exemption with a permanent 25% FBT discount, phased in over two steps. From 1 April 2027, the 25% discount would apply to eligible EVs valued above $75,000. From 1 April 2029, it would apply to all eligible EVs. Treasury says EVs valued at or below $75,000 keep the 100% exemption if the commitment is made before 1 April 2029. Treasurer Jim Chalmers listed the EV changes in an 11 September release as part of a package of exposure draft legislation. At this stage, the measure is a draft only. It has not been introduced to Parliament or passed.

Why 1 April 2027 matters

For employees already in a novated lease on an eligible EV, that wording suggests their arrangement would continue under the current rules for as long as that commitment runs. For people still shopping, 1 April 2027 is the line that matters for cars above $75,000. A commitment made before that date would fall under the existing exemption. One made on or after it would, under the draft, receive only the 25% discount.

How the 25% discount could work

FBT on cars is commonly calculated under the statutory formula, which takes 20% of the car's base value as the taxable value for a year. That figure is then grossed up and taxed at the FBT rate. Hypothetical example: an employer commits to an $85,000 eligible EV in June 2027, after the proposed cut-off. The example assumes the statutory formula, a full year of use, today's Type 1 gross-up rate of 2.0802 and the current 47% FBT rate, and ignores any employee contributions.

Taxable value: 20% of $85,000 = $17,000

On these assumptions, the discount trims about $4,155 from the bill. The remaining FBT compares with nil for a car of the same value committed to before 1 April 2027. By contrast, a $70,000 EV committed to in June 2027 would sit at or below $75,000 and, under the draft, remain fully exempt. In practice, novated leases usually use post-tax employee contributions to reduce the FBT bill, so the figure above shows the scale of what is at stake rather than what an employee would actually pay. Future FBT rates and gross-up factors are also assumptions.

What it could mean for take-home savings

The exemption has made novated EV leases popular because lease costs can be paid largely from pre-tax salary without an FBT bill. Under Treasury's description of the draft, a car at that price committed before 1 April 2029 would keep the full exemption, so the estimate is best read as a measure of what the concession is worth. For cars priced close to the $75,000 mark, the timing of the commitment, and the value recorded when the employer first holds the car, could decide which treatment applies. The two descriptions of the transitional rules do not line up neatly.