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A popular tax exemption on electric cars that has cost 18 times more than forecast will be cut back from 2027 to return $1.7 billion to the budget.
Electric Cars
The Federal Government will scale back the exemption on Fringe Benefits Tax for electric cars purchased through novated leases after it was found to have cost 18 times more in lost tax revenue than first forecast.
The tax break will not be scrapped entirely – instead wound back to a 25 per cent discount, rather than a full exemption – and changes will be phased in, starting April 2027.
It follows a formal review of the policy announced late last year, after it proved significantly more popular than first anticipated, the latest projections estimating $1.35 billion in lost tax revenue this financial year – up from an initial $70 million forecast.
Existing novated leases will not be impacted by the wind-back, which is estimated to save the budget $1.7 billion over five financial years, including the current one.
The 100 per cent discount on the Fringe Benefits Tax in novated leases – where the vehicle is purchased from an employee's pre-tax salary – will continue unchanged until the end of March 2027.
From 1 April 2027, it will apply only to electric cars valued at $75,000 or less, with models priced between $75,001 and the Luxury Car Tax threshold – the current cut-off for the exemption – eligible for a 25 per cent discount on FBT.
The LCT threshold for "fuel-efficient vehicles" is currently set at $91,387, but a new bracket for electric vehicles – initially set at $120,000 – is due to be introduced as part of a free-trade deal with the EU.
From 1 April 2029, all electric vehicles priced below the Luxury Car Tax threshold will only access a 25 per cent discount on Fringe Benefits Tax.
There is no change to existing exemptions on import tariffs on electric cars, which form a component of the Electric Car Discount policy that includes the FBT exemption.
The Federal Government's quoted boost in tax revenue – $1.7 billion from 1 July 2025 to 30 June 2030 – compares to the most recent projections of lost tax revenue from 1 July 2025 to 30 June 2029 of $8.1 billion.
A media release from Treasurer Jim Chalmers and Minister of Climate Change and Energy, Chris Bowen, described the cuts to the exemption as "common-sense changes".
"The strongest uptake of our EV tax cut is occurring primarily outside the inner cities – with Gosford, Kellyville, Werribee and Toowoomba among the highest uptakes," the media release said.
It added that the review of the program "found that the scheme had been successful at encouraging uptake".
The Federal Government estimates the wider Electric Car Discount has added "around 64,000" electric cars, and "around 78,000" plug-in hybrids to Australian roads in the three years to December 2025.
It claims the "full savings from additional BEVs [battery-electric vehicles]" hitting local roads are "around $1.7 billion", including estimated health benefits "due to lower air pollution", lower noise, and reductions in fuel use.
"Increased uptake of EVs also helps to reduce Australia’s reliance on imported fuels, diminishing the impact of global oil price fluctuations," the report says.
Electric Cars Guide
Alex Misoyannis has been writing about cars since 2017, when he started his own website, Redline. He contributed for Drive in 2018, before joining CarAdvice in 2019, becoming a regular contributing journalist within the news team in 2020. Cars have played a central role throughout Alex’s life, from flicking through car magazines at a young age, to growing up around performance vehicles in a car-loving family. Highly Commended - Young Writer of the Year 2024 (Under 30) Rising Star Journalist, 2024 Winner Scoop of The Year - 2024 Winner
