Electric cars costing more than $75,000 are set to lose their full fringe benefits tax exemption from 1 April 2027 under changes announced as part of the 2026–27 Budget.

The measure is not yet law. Until legislation is passed, the existing rules continue to apply. However, the proposed changes could materially affect employers, fleet operators and employees considering a novated lease for a higher-priced electric vehicle.

What Has Been Announced?

Since July 2022, eligible zero or low-emissions cars provided by employers have generally been exempt from fringe benefits tax where they satisfy the relevant conditions and fall below the luxury car tax threshold for fuel-efficient vehicles.

The concession has played an important role in the economics of electric vehicle salary packaging because an eligible vehicle can be provided without the usual FBT liability.

Under the announced changes, that full exemption would be scaled back in stages.

Until the relevant legislation passes, however, the existing exemption continues to operate under the current rules.

The Three Proposed Phases

The current full exemption is proposed to continue until 31 March 2027.

From 1 April 2027 to 31 March 2029, electric vehicles costing $75,000 or less would continue to receive the full exemption.

Cars costing more than $75,000 but remaining below the applicable luxury car tax threshold would instead receive a 25% discount on the amount of FBT otherwise payable.

This discount is proposed to operate through a 15% statutory rate rather than the standard 20% rate used in the statutory formula method.

From 1 April 2029, the full exemption would end for all eligible electric vehicles.

At that point, eligible EVs below the luxury car tax threshold would instead receive the permanent 25% FBT discount.

The April start dates reflect the FBT year, which runs from 1 April to 31 March.

Why the $75,000 Threshold Matters

The proposed $75,000 threshold creates an important dividing line.

Vehicles priced at or below that level would continue to receive the full exemption until April 2029.

Vehicles priced above $75,000 but below the relevant luxury car tax threshold would begin attracting some FBT from April 2027.

This means a relatively small difference in vehicle price could produce a much larger difference in the associated tax outcome.

The impact will also depend on the luxury car tax threshold that applies in the relevant year because that threshold is indexed over time.

A Hypothetical Example

Consider an electric vehicle with an FBT base value of $85,000 that is provided to an employee for a full FBT year from April 2027.

Assume the vehicle remains below the applicable luxury car tax threshold and that no employee contribution is made.

Under the proposed 15% statutory rate, the taxable value would be:

$85,000 × 15% = $12,750.

Using a type 1 gross-up rate of 2.0802 and an FBT rate of 47%, the resulting FBT liability would be approximately $12,466.

Under the standard 20% statutory rate, the equivalent FBT would be approximately $16,621.

Under the current full exemption, the FBT would be nil.

This demonstrates how the proposed 25% discount reduces the liability compared with the standard calculation but still represents a significant change from the existing full exemption.

The figures are illustrative only and assume current FBT rates and gross-up factors remain unchanged.

The Threshold Effect

The proposed structure also creates a sharp distinction around the $75,000 level.

Consider a hypothetical EV with an FBT base value of $76,000.

Using the proposed 15% statutory rate, its taxable value would be:

$76,000 × 15% = $11,400.

Using the same FBT assumptions, the resulting FBT would be approximately $11,146.

By contrast, a qualifying vehicle costing $75,000 would remain fully exempt until April 2029.

That means a $1,000 difference in base value could potentially produce a substantial annual FBT difference.

The calculation would depend on the final legislation, the vehicle's actual FBT base value and whether employee contributions are made.

Employee Contributions Can Change the Outcome

In many novated lease arrangements, employees make after-tax contributions that reduce the taxable value of the car benefit.

This can lower or potentially eliminate the FBT payable.

For example, if the taxable value of a vehicle under the proposed rules were $12,750, an employee contribution of the same amount could reduce the taxable value to nil, depending on the structure of the arrangement.

However, making larger after-tax contributions also reduces some of the salary-packaging advantage that comes from paying vehicle costs from pre-tax income.

The overall benefit of a novated lease would therefore depend on the vehicle price, salary, lease structure, employee contributions and other costs.

Existing Lease Arrangements

Existing leases are expected to receive transitional treatment under the announced policy.

However, the exact definition of an existing arrangement will depend on the final legislation.

This distinction may be important for vehicles above $75,000 because the tax treatment could differ depending on when a lease or other binding arrangement is entered into.

Until the legislation is enacted, the precise cut-off conditions and grandfathering rules remain uncertain.

Reporting Requirements Still Matter

Even where an EV benefit is exempt from FBT, employers may still need to calculate its taxable value for reporting purposes.

An exempt electric vehicle benefit can still contribute to an employee's reportable fringe benefits amount.

That amount may affect income-based calculations used for other tax and government purposes.

Employers therefore need to maintain accurate records of vehicle values, lease arrangements and employee contributions even where no FBT is ultimately payable.

The introduction of a $75,000 threshold would make accurate vehicle valuation even more important.

The Luxury Car Tax Threshold Still Sets the Upper Limit

The $75,000 threshold would not operate in isolation.

The existing luxury car tax threshold for fuel-efficient vehicles would continue to determine the upper eligibility limit for the concession.

Cars above that threshold generally do not qualify for the EV FBT concession.

Because the threshold is indexed, the upper end of the eligible range can change from year to year.

The size of the band between $75,000 and the luxury car tax threshold will therefore depend on the threshold applying in the relevant FBT year.

What Employers May Need to Review

The proposed changes could require employers to review fleet policies, salary-packaging systems and employee communications.

Payroll and salary-packaging systems may need to distinguish between vehicles below $75,000, vehicles above $75,000 but below the luxury car tax threshold, and vehicles outside the concession altogether.

Employers may also need to review how vehicle values are recorded and how transitional arrangements are applied.

These issues could become increasingly important as the proposed 1 April 2027 start date approaches.

What to Watch Before April 2027

The most important development will be the introduction and passage of legislation.

The final law will need to clarify how the $75,000 threshold is measured, how existing arrangements are treated and how the discount interacts with the luxury car tax threshold.

The applicable luxury car tax threshold for the 2027–28 period will also be relevant.

Changes to the FBT rate, statutory formula rate or gross-up factors could affect the numerical examples and the actual cost of the concession.

Until those details are settled, the current EV FBT rules continue to apply.