FBT Electric Car Discount Reform — Budget 2026 Phased Transition to 1 April 2029
Last reviewed:
Primary tax-year context: Current Australian tax settings
This article is general information only. We maintain pages using primary-source checks and date-based reviews. See editorial policy.
General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.
Budget 2026 announced Electric Car Discount — more sustainable fringe benefits tax treatment of electric cars, a phased transition that ends the 100% FBT discount on electric cars and replaces it with a permanent 25% FBT discount from 1 April 2029 for eligible EVs. The “100% discount” everyone has been salary-packaging since 2022 was never going to be permanent — the legislation always required a review in 2027. This Budget locked in the answer early, with a multi-year transitional schedule.
The reform is forecast to increase receipts by $1.9 billion over five years, with $200 million in implementation payments.
The four-phase transition schedule
| Period | EV value ≤ $75,000 | EV value > $75,000 but ≤ fuel-efficient LCT threshold | EV value > fuel-efficient LCT threshold |
|---|---|---|---|
| Now → 31 March 2027 | 100% FBT discount (0% statutory rate) | Not eligible for FBT discount | Not eligible |
| 1 April 2027 → 31 March 2029 | 100% FBT discount (0% statutory rate) | NEW: 25% FBT discount (15% statutory rate) | Not eligible |
| From 1 April 2029 | 25% FBT discount (15% statutory rate) — permanent | 25% FBT discount (15% statutory rate) — permanent | Not eligible (20% statutory rate applies) |
Existing arrangements are grandfathered at their commencing rate. Any EV already on a salary-packaging or novated lease arrangement retains the FBT discount rate that applied when the arrangement started, for as long as that arrangement continues.
What changes when
Effective immediately (12 May 2026)
The schedule above is confirmed. Reportable fringe benefits for eligible electric cars will continue to be determined as if a 20% FBT statutory formula rate (or cost basis method) applied — i.e. the reportable figure on payment summaries does not get the 0% / 15% discount benefit.
From 1 April 2027
EVs valued above $75,000 but up to the fuel-efficient luxury car tax (LCT) threshold become eligible for a 25% FBT discount (15% statutory rate). For the first time, more expensive EVs gain access to a partial FBT discount they were excluded from before.
The fuel-efficient LCT threshold was $91,387 for 2025-26 and is CPI-indexed each year; the ATO publishes the indexed value separately.
From 1 April 2029
The 100% FBT discount ends for new arrangements. From this date:
- All new eligible electric cars (regardless of whether they’re ≤$75k or above) receive the 25% FBT discount (15% statutory rate).
- The 20% statutory rate continues to apply to all other cars, including ICE vehicles and electric cars priced above the fuel-efficient LCT threshold.
What this means in dollar terms
The FBT statutory formula calculates the taxable value of a car fringe benefit as base value × statutory rate. The lower the statutory rate, the lower the taxable value, and the lower the FBT (or the salary-sacrifice amount needed to fully offset FBT to zero).
Three regimes, applied to a $70,000 EV with base value of $70,000:
| Statutory rate | Taxable value | Annual FBT cost (gross-up × FBT rate) |
|---|---|---|
| 0% (100% discount, current) | $0 | $0 |
| 15% (25% discount, post-1 April 2029) | $10,500 | ~$10,490 |
| 20% (no discount, ICE car) | $14,000 | ~$13,987 |
In other words, an EV under a salary-packaging arrangement that starts on or after 1 April 2029 will incur around 75% of the FBT cost of an equivalent ICE car — substantially better than zero, but no longer free.
Plug-in hybrids — still out
The PHEV cut-off remains as it was: 1 April 2025 was the last day PHEVs were eligible for the EV FBT exemption. Budget 2026 did not reinstate PHEVs. The schedule above applies only to fully electric cars (battery electric vehicles and hydrogen fuel-cell vehicles).
Strategy implications
If you’re considering a novated lease NOW (12 May 2026 – 31 March 2027)
You can still lock in the 100% FBT discount for the entire life of the lease, provided:
- The EV is fully electric (BEVs only — no PHEVs).
- The car value is at or below the fuel-efficient LCT threshold at first retail sale.
- The arrangement commences before 1 April 2029 (for cars ≤$75k retaining the 0% rate during the transition).
The grandfathering rule preserves the rate that applied when the arrangement commenced. If you lock in a 4-year lease today on a $65,000 EV, your 0% statutory rate persists through 2030 even though new leases from 1 April 2029 would only get the 25% discount.
If you’re considering a higher-priced EV ($75k–$91k range)
Wait until 1 April 2027 if practical. From that date, EVs above $75k but at or below the fuel-efficient LCT threshold gain access to the 25% FBT discount for the first time. Before that, they get no discount at all (i.e., are taxed at the full 20% statutory rate like any ICE car).
This effectively unlocks Teslas, Polestars, BYDs and other premium EVs in the $75k–$91k bracket for partial salary packaging that was previously uneconomic.
If you’re considering an EV above the fuel-efficient LCT threshold
The reform does not help you. Vehicles above the threshold continue to be taxed at the 20% statutory rate with no FBT discount. Salary packaging for these cars remains unattractive vs ownership.
Existing leases
No action required. Grandfathering applies automatically. The rate you started with persists for the life of the existing arrangement.
Eligibility checklist
To qualify for any FBT discount under the new schedule:
- The car must be a zero or low-emission vehicle (BEV or hydrogen fuel-cell) at first retail sale.
- The car must be first held and used on or after 1 July 2022.
- The car must be valued at or below the fuel-efficient luxury car tax threshold at first retail sale (for the post-2029 25% discount). For the current 100% discount, the $75,000 cap applies until 1 April 2029.
- The benefit must be provided to a current employee (not a former employee or contractor).
- Plug-in hybrids no longer qualify (cut-off was 1 April 2025).
What about the LCT itself?
Budget 2026 made no changes to the Luxury Car Tax thresholds. The ATO continues to publish CPI-indexed values each year. The fuel-efficient threshold (which dictates the upper boundary for EV FBT discount eligibility) was $91,387 in 2025-26 and will be indexed upward for 2026-27.
Costing summary
| Year | Receipts impact ($m) |
|---|---|
| 2025-26 | — |
| 2026-27 | -10.0 |
| 2027-28 | +50.0 |
| 2028-29 | +330.0 |
| 2029-30 | +1,570.0 |
| 5-year total | +$1,940 million |
Implementation payments to Treasury: +$200 million over 5 years.
Calculators
- EV Novated Lease Calculator — compare 100% discount (pre-1 April 2029) vs 25% discount (post-2029) cash-flow over a 4-year lease.
- Car FBT Calculator — model the statutory formula method at 0% / 15% / 20% rates.
- FBT Calculator — general FBT calculator for non-car benefits and grossed-up values.
Sources
- Treasury Budget Paper No. 2, Electric Car Discount – more sustainable fringe benefits tax treatment of electric cars (12 May 2026), p11
- Australian Taxation Office, Electric cars exemption (current guidance)