Policy change announced — 4 May 2026
EV FBT exemption phase-out — 2026 Budget explained
The federal treasurer has announced a phased wind-back of the EV FBT exemption, effective across the next three FBT years. Existing leaseholders are largely protected, with meaningful lead time before changes take effect.
What was announced
On 4 May 2026, the federal treasurer announced the modification — and eventual phase-out — of the Fringe Benefits Tax (FBT) exemption for electric vehicles. The changes are structured across three stages, with different rules applying depending on when your lease commenced and the value of the vehicle.
Notably, the announcement provides genuine lead time rather than an immediate cut: most people currently committed to a lease are not affected until at least 1 April 2027, and many existing leases are grandfathered through to their conclusion.
The complete picture: who is affected, and when
Every scenario by lease start date, vehicle FBT value, and FBT year.
| Lease entered | Vehicle FBT value | 1 Apr 2027 – 31 Mar 2029 | 1 Apr 2029 onward |
|---|---|---|---|
| 1 Jul 2022 – 1 Apr 2027 | ≤ $91,387 | FBT-exempt | FBT-exempt |
| 1 Jul 2022 – 1 Apr 2027 | > $91,387 | FBT-applicable (100%) | FBT-applicable (100%) |
| 1 Apr 2027 – 31 Mar 2029 | ≤ $75,000 | FBT-exempt | FBT-exempt |
| 1 Apr 2027 – 31 Mar 2029 | $75,001 – $91,661 | FBT-discounted (75%) | FBT-discounted (75%) |
| 1 Apr 2027 – 31 Mar 2029 | > $91,661 | FBT-applicable (100%) | FBT-applicable (100%) |
| 1 Apr 2029 or later | ≤ EV LCT threshold | N/A | FBT-discounted (75%) |
| 1 Apr 2029 or later | > EV LCT threshold | N/A | FBT-applicable (100%) |
In all scenarios, to qualify for any FBT exemption or discount the vehicle must have been first held and used after 1 July 2022, and must never have had LCT paid throughout its history.
Key observations
Existing leases entered before 1 April 2027 are substantially protected.
If your car's FBT base value was at or below the applicable LCT threshold when you signed, your lease continues FBT-exempt until it concludes — regardless of whether that end date falls after 2027 or 2029.
New leases entered between 1 April 2027 and 31 March 2029 face a sliding scale.
Cars valued at $75,000 or below remain FBT-exempt. Cars between $75,001 and the LCT threshold are subject to a 75% discount from the outset. Cars above the LCT threshold remain fully FBT-applicable.
New leases entered from 1 April 2029 onward lose full exemption.
The full FBT exemption is no longer available. Cars valued under the LCT threshold at the time of purchase attract a 75% FBT discount, while cars above the LCT threshold attract the full FBT rate.
What "FBT-applicable" actually means for your costs
FBT is technically a tax payable by the employer — but employers almost universally pass this obligation on to the employee via the Employee Contribution Method (ECM), making it cost-neutral for the employer.
Under a fully FBT-exempt novated lease, the entire fortnightly or monthly lease payment is funded from pre-tax income. The effective discount equals your marginal tax rate plus the 2% Medicare levy — 47% for top-bracket earners, 39% for the next bracket, and so on.
Under an FBT-applicable lease, the ECM rule requires that 20% of the car's pre-on-road purchase price be converted from pre-tax to post-tax payment each year. This substantially reduces the proportion of the lease that can be funded pre-tax — and therefore materially reduces the tax benefit.
Example: car with an FBT base value of $75,500
- Under the FBT-exempt structure, ~$19,000 per year is paid pre-tax on a 5-year lease
- If this becomes FBT-applicable, ~$15,100 per year must instead be paid post-tax, with only ~$4,000 remaining as a pre-tax deduction
- The consequence is a dramatically lower saving, because much less of the lease payment is sheltered from income tax
Financial impact: extra annual cost vs FBT-exempt
Based on an $80,000 vehicle. Substitute your own car price and marginal rate for your specific situation.
FBT-applicable (100%) vs FBT-exempt
| Tax bracket | Extra cost / year |
|---|---|
| 30% + 2% Medicare levy | $6,109 |
| 37% + 2% Medicare levy | $7,127 |
| 45% + 2% Medicare levy | $8,291 |
FBT-discounted (75%) vs FBT-exempt
| Tax bracket | Extra cost / year |
|---|---|
| 30% + 2% Medicare levy | $4,582 |
| 37% + 2% Medicare levy | $5,346 |
| 45% + 2% Medicare levy | $6,218 |
What this means in practice
The financial impact of the transition from FBT-exempt to FBT-applicable or FBT-discounted is significant — in the thousands of dollars per year for most mid-range EV novated leases. The more expensive the car and the higher your marginal tax rate, the larger the dollar impact.
People already in a lease
If your car was at or below the LCT threshold when you entered the lease prior to 1 April 2027, you are protected. There is no immediate action required.
People considering a new lease between April 2027 and March 2029
- Cars at $75,000 or below remain a strong proposition through to their lease conclusion
- Cars between $75,001 and the LCT threshold attract a 25% effective FBT cost from day one, meaningfully reducing (though not eliminating) the pre-tax benefit
- Cars above the LCT threshold continue as fully FBT-applicable leases, as they were before
People planning a lease from April 2029 onward
The full EV FBT exemption will no longer be available. A residual 25% discount remains for cars within the LCT threshold, but the headline benefit of EV novated leases will be substantially diminished compared to what has been available since 2022.
Key takeaways
- The FBT exemption wind-back is phased: existing leases are largely protected, with the transition beginning for new leases from 1 April 2027
- From 1 April 2029, no new EV novated lease will be fully FBT-exempt, regardless of vehicle price
- For a top-bracket earner driving an $80,000 EV, transitioning from FBT-exempt to fully FBT-applicable adds over $8,000 in out-of-pocket costs per year
- The 75% discount structure provides a meaningful but partial buffer — roughly 75% of the original saving is retained
- If you are currently in a qualifying lease, no action is required — your exemption is locked in until the lease concludes
Published 4 May 2026. Based on the treasurer's announcement. EV Lease reviews the latest rules continuously and will confirm eligibility for your exact vehicle and lease arrangement. Budget measures are subject to final legislation.