Electric Vehicle FBT Exemption: Why Business Owners Should Review EV Plans Now

Interest in electric vehicles is accelerating again as fuel costs rise. At the same time, the electric vehicle FBT exemption changes expected from 1 April 2027 could reshape the tax outcomes that have made EVs so compelling for business owners. While the law has not yet been enacted, the direction of travel is clear. The next 12 months represent an important planning window. For businesses considering EVs, the structure of the decision now matters as much as the vehicle itself.

We are now less than 12 months out from the proposed wind-back of the electric vehicle FBT concession. The change was originally announced in the 2026 Federal Budget and has since been reinforced through Treasury commentary ahead of the 2026–27 Budget. Legislation has not yet been released. What is clear is that the FBT exemption itself is being reshaped, not just novated leasing rules, which has been a common misconception since the original announcement. While existing leases are expected to be protected, the treatment of employer-owned vehicles remains uncertain. For businesses already considering EVs in the coming months, planning now is critical.

Why EV decisions are back on the agenda

Rising fuel prices have pushed many businesses back into reviewing vehicle costs. For some, electric vehicles are now being considered not just for sustainability reasons, but as a genuine operating cost decision.

Over the last few years, the electric vehicle FBT exemption has made EVs particularly attractive through:

• novated leasing for owners and key staff
• salary packaging as part of remuneration strategy
• employer‑provided vehicles replacing traditional fleets

That window of certainty is now closing. With the proposed changes to the electric vehicle FBT exemptions set to apply from 1 April 2027, decisions made over the next 6 to 12 months may lock in very different tax outcomes depending on structure and timing.

What has changed and what has not

In the 2026 Federal Budget, the Government announced its intention to pare back the electric vehicle fringe benefits tax exemption after the cost of the measure significantly exceeded initial forecasts.

That announcement outlined a staged reduction rather than an abrupt removal.

In the lead‑up to the 2026–27 Budget, commentary confirms that the Government remains committed to this position. Importantly:

• the 2026–27 Budget has not yet been handed down
• no draft legislation has been released
• the changes are not law at this stage

What follows is based on the original 2026 Budget announcement and consistent subsequent reporting.

Proposed timing and framework

Until 31 March 2027
No change to current rules. Eligible electric vehicles remain fully exempt from FBT under the existing electric car discount.

From 1 April 2027
Electric vehicles with a value at or below $75,000 are expected to remain fully exempt from FBT.
Electric vehicles above $75,000 and below the luxury car tax threshold are expected to attract FBT at 75% of the standard rate. This is often described as a 25 percent exemption, but commercially it means most of the FBT cost returns.

From 1 April 2029
All electric vehicles below the luxury car tax threshold are expected to move to the 75% FBT rate.
Full exemption would no longer apply for new arrangements. Press reporting has consistently indicated that existing novated leases entered into before the change are intended to be grandfathered for their full term.

Why this matters commercially

For many business owners, the EV decision is not theoretical. It is happening now, driven by:

• fuel price volatility
• whole‑of‑cost comparisons
• employee expectations around benefits and packaging

The proposed shift from a full exemption to a discounted FBT regime materially changes the numbers. Vehicles that once delivered clear savings may still be attractive, but the margin for error is much smaller.

The difference between entering into an arrangement before or after 1 April 2027, and the difference between leasing and owning, may determine whether an EV delivers a net benefit or a tax surprise.

What the FBT rules actually apply to

A common misconception is that these changes only affect novated leases. That is not correct.

The electric vehicle concession sits within the car fringe benefit rules. It applies whenever an employer provides a car to an employee and that car is available for private use.

This includes:

• novated leases
• employer‑owned vehicles
• vehicles acquired under hire purchase or finance

From a legal perspective, the exemption applies to the ongoing benefit, not the purchase transaction.

As a result, any change to the exemption affects all electric vehicle car fringe benefits, not just leasing arrangements.

Why leases are being treated differently

Government commentary has consistently highlighted novated leases when discussing transitional protection, despite the EV concession applying broadly across all car fringe benefits.  Leases have a clear commencement date, involve a financially binding commitment, and are therefore easier to grandfather from a policy perspective, consistent with how transitional rules were previously applied to plug‑in hybrid vehicles.

Based on what has been publicly stated, any transitional protection is expected to be linked to the start date of a lease, rather than simply when a vehicle was purchased.

By contrast, there has been no explicit confirmation that employer‑owned electric vehicles acquired outright or under finance before 1 April 2027 will receive similar protection. Neither the original 2026 Budget announcement nor subsequent reporting has suggested that ownership alone locks in the exemption, and under normal FBT principles the benefit is assessed each FBT year based on the law in force at that time. Unless specific transitional rules are introduced, purchase date alone is unlikely to be determinative, creating a real and important distinction between leasing and owning even where the same vehicle is involved.

Illustrative example

Novated lease entered into February 2027
Based on current statements, the full FBT exemption is expected to continue for the life of the lease.

Company purchases an electric vehicle outright in February 2027
From 1 April 2027, the vehicle would likely be assessed under the new regime. Full exemption would only apply if the vehicle value is $75,000 or less.

This difference reflects how FBT treats ongoing benefits rather than acquisition decisions.

What we know and what we do not

What is known based on public announcements and credible reporting:

• the wind‑back of the EV FBT concession was announced in the 2026 Federal Budget
• the proposed start date is 1 April 2027
• a $75,000 value threshold will become critical
• above that threshold, most of the FBT cost is expected to return
• existing novated leases are intended to be protected

What remains unknown:

• the treatment of employer‑owned or financed electric vehicles
• whether any non‑lease arrangements will receive transitional relief
• the final legislative wording and ATO guidance

Until legislation is released, these points remain unresolved.

Common misconceptions to be careful of

Several assumptions are already circulating that could lead to poor decisions:

• It only affects novated leases Incorrect. The concession applies to all car fringe benefits.
• A 25 percent exemption is minor Misleading. In practice, most of the FBT liability returns.
• Buying before 2027 guarantees protection Not supported by how FBT law generally operates.

What business owners should be thinking about now

With less than 12 months until the proposed start date, the EV discussion is shifting from “is this attractive?” to “how do we structure this safely?”

Key considerations include:

• whether leasing provides more certainty than ownership
• vehicle selection relative to the $75,000 threshold
• remuneration and take‑home pay impacts for key staff
• avoiding decisions driven purely by fuel savings headlines

Thinking about EVs for your business?

We can help you work through the FBT impact, timing and structure before you commit. Reach out to our team using for assistance with your Tax Planning & Business Advisory needs HERE.

Author: Kylie McEwan – Director | Partner

Disclaimer: The information that is provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals. Davidsons is not licensed to provide any financial product advice nor make any recommendations in respect of any financial product. If you require such advice, you will need to consult a financial adviser who is licensed to provide financial product advice before you make a decision on a financial product.

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