EV FBT Exemption: What It Is and What's Changing

The electric vehicle FBT exemption is one of the most significant changes to Australian salary packaging in decades — but the rules have already changed once, and understanding exactly how it works prevents costly surprises.

The background: Treasury Laws Amendment (Electric Car Discount) Act 2022

From 1 July 2022, the Australian Government introduced an exemption from Fringe Benefits Tax (FBT) for eligible electric vehicles provided through a novated lease or company car arrangement. The policy was designed to accelerate EV uptake by making salary packaging an EV dramatically cheaper than buying one outright.

Before the exemption, a novated lease on a $70,000 EV would attract FBT at 20% of the vehicle's cost (the statutory fraction), grossed up and taxed at 47% — adding thousands to the effective cost. The exemption removes that FBT entirely, making pre-tax novated lease payments the full saving.

Which vehicles qualify

To qualify for the FBT exemption, a vehicle must:

What changed on 1 April 2025: PHEVs lose the exemption

Plug-in hybrid electric vehicles (PHEVs) — vehicles with both an electric motor and a combustion engine — were originally included in the exemption. From 1 April 2025, PHEVs became ineligible.

The practical impact:

What's coming in FY2026–27: the exemption sunsets for new leases

The government has confirmed that the EV FBT exemption will not apply to new novated leases entered into on or after 1 April 2027. Existing leases that were in place before that date — where the car was first held and used before 1 April 2027 — will remain exempt until the lease ends.

In practical terms:

Use Motorate's novated lease calculator in both "EV/fuel efficient" and standard mode to compare your pre- and post-April 2027 numbers.

The reportable fringe benefits catch

This is the most commonly misunderstood aspect of the EV exemption. Even though FBT is not payable by the employer, the exempt EV benefit is still a reportable fringe benefit that must appear on the employee's income statement.

The taxable value of the EV benefit (vehicle cost × 20% × days held / 365) is reported as a Reportable Fringe Benefits Amount (RFBA) — it does not attract FBT, but it is included in your income for the purposes of:

For most employees on a moderate salary with no government payments, the RFBA impact is modest. For those near income thresholds for means-tested programs, it's worth calculating before committing to a lease.

How the saving works in practice

The financial benefit of the exemption comes from two sources:

  1. Pre-tax payments reduce your taxable income — lease payments are made from your pre-tax salary, saving tax at your marginal rate (32.5%–47% including the Medicare Levy for most eligible employees).
  2. No FBT erodes the saving — under a standard novated lease for a non-EV, FBT is calculated and either paid by the employer (who recovers it from your packaging) or reduced via ECM contributions. For an exempt EV, there is no FBT at all, so the full pre-tax payment is a pure saving.

Example: A $75,000 BEV novated lease with $20,000 annual running costs, 60-month term, for an employee on a $120,000 salary (marginal rate ~39% including Medicare).

Use Motorate's calculator with the "Fuel efficient/EV" toggle on and "Novated lease" mode to model your specific scenario — the calculator applies the ATO residual and excludes FBT for qualifying BEVs.

LCT threshold: the price ceiling

The fuel-efficient vehicle LCT threshold is the upper boundary and is indexed annually. Popular BEVs above the threshold — including some Tesla Model S and X variants, Porsche Taycan, and others — do not qualify for the exemption. The vehicle must be below the threshold at the time of its first retail sale, not at the time you buy it used. Check ato.gov.au for the current year's threshold before purchasing.

If you're considering a used EV, the LCT test applies to the original sale price, not the current market price. A second-hand Model 3 that sold new at $65,000 qualifies even if you buy it used for $45,000.

What to do now

This guide reflects ATO guidance and legislation current as of June 2026. Tax rules change — confirm current thresholds and eligibility with your employer's salary packaging provider or a registered tax adviser before entering into a lease.