Highlights

  • The Tax Reform No. 4 Bill, introduced on 27 October, ends full electric car exemption after 31 March 2029.
  • Electric cars valued up to $75,000 would keep the full FBT exemption from 1 April 2027 until 31 March 2029.
  • From 1 April 2029, eligible electric cars would receive a 25% discount on the 20% statutory formula rate instead.
  • Existing leases are expected to keep the treatment in place when their last relevant commitment began.

What happens to a salary-packaged electric car when the tax break behind it gets an end date? Parliament now has a bill that answers the question. The Treasury Laws Amendment (Tax Reform No. 4) Bill 2026, introduced on 27 October, would keep the full fringe benefits tax exemption for electric cars valued up to $75,000 until 31 March 2029, then replace it with a 25% discount. It is a bill, not law, and the current exemption keeps applying until that changes.

Where the exemption stands today

Since 2022, eligible zero or low emissions cars provided to employees can be exempt from FBT when their value is below the luxury car tax (LCT) threshold for fuel-efficient vehicles. That covers salary-packaged novated leases, where the car is paid for partly from pre-tax salary and the employer incurs no FBT.

Two stages of change

Treasurer Jim Chalmers' second reading speech sets out the staging. From 1 April 2027 to 31 March 2029, the full 100% exemption continues for electric cars valued up to $75,000. From 1 April 2029, electric cars up to the LCT fuel-efficient threshold get a 25% discount on the 20% statutory formula rate applied to other cars.

The earlier exposure draft also had cars above $75,000 but under the LCT threshold receiving the 25% discount during 2027 to 2029. So the most generous treatment narrows to cheaper cars from April 2027, and from April 2029 no electric car would be fully exempt.

The grandfathering rule

Eligible cars keep the treatment that applied when the "last relevant commitment" began, according to the second reading speech.

What counts as that commitment when a lease is refinanced, extended or replaced will depend on the final legislation and ATO guidance. Signing dates could matter too: a commitment before 1 April 2027 for a car above $75,000 may be treated differently from one made afterwards.

The 2029 discount in numbers

Consider a hypothetical electric car with a base value of $60,000 for FBT purposes. Until 31 March 2029 under the bill, the employer's FBT on it would be nil. From 1 April 2029, if the new discount applied rather than grandfathering, the 20% rate would fall by 25% to 15%.

That gives a taxable value of $60,000 × 15% = $9,000 for a full year, against $12,000 without the discount. That is lower, but no longer zero, and it comes before employee contributions, the gross-up and the 47% FBT rate.

The government's case and the Senate hurdle

Chalmers told Parliament that electric cars have gone from about 1 in 50 new car sales when Labor took office to about 1 in 8 in 2025. The government's framing is that the exemption has largely done its job.

The measure is one of five schedules, sharing a bill with a start-up CGT concession and an R&D Tax Incentive overhaul. Labor holds the House of Representatives but depends on the Greens or crossbench in the Senate. The Greens' condition for the R&D changes is excluding oil and gas companies from roughly $350 million a year in R&D tax credits. Because of the bundling, the EV changes could hinge on unrelated negotiations.

Dates and details to watch

Mark 1 April 2027 for the proposed $75,000 cap, 31 March 2029 as the last day of full exemption, and 1 April 2029 for the 25% discount. The bill's dates could shift if passage is delayed, and no Senate committee reporting date had been confirmed at the time of writing. The fuel-efficient LCT threshold is indexed, so the ceiling for the 2029 discount depends on the figure then.