The EV tax break Australians actually use is changing

For most buyers, the federal "Electric Car Discount" never meant a cheque in the mail. It works through Fringe Benefits Tax (FBT): when an eligible electric car is financed through a novated lease (salary packaging), the employer pays no FBT on it, and the employee covers the whole lease — including, in most arrangements, the GST-inclusive purchase price — out of pre-tax salary. On a $60,000 EV that can be worth thousands of dollars a year versus a petrol car bought with after-tax income. That is the real mechanism, and it is the part of the policy that is now being wound back.

In the 2026-27 Federal Budget (announced in May 2026), the Government confirmed it will phase out the full FBT exemption rather than extend it. So the headline question for buyers has flipped: it is no longer "is the break still here?" but "how much longer does the full version last, and does my car still qualify?"

What's still true today

The exemption is fully in place until 31 March 2027. To qualify, a car must be:

• a battery-electric or hydrogen fuel-cell vehicle (plug-in hybrids lost eligibility on 1 April 2025, with only narrow grandfathering for arrangements already running);
• priced at or below the fuel-efficient luxury car tax (LCT) threshold, which is $91,387 for 2025-26; and
• first held and used on or after 1 July 2022.

One catch worth knowing: from 1 July 2025 the ATO tightened the definition of "fuel-efficient" for LCT from 7.0 to 3.5 litres/100km. That mostly affects which petrol and diesel cars get the higher cap; battery-electric cars use no fuel and still sit under the $91,387 ceiling (the standard LCT threshold for other vehicles is $80,567). The practical takeaway: check the car's price against $91,387, not the lower figure.

What changes, and when

The phase-out runs in steps. The key new number is $75,000, which becomes the line for the full discount:

• Until 31 March 2027: unchanged — eligible EVs under the LCT threshold get the full 100% FBT discount.
• 1 April 2027 to 31 March 2029: EVs priced at or under $75,000 keep the full 100% discount. EVs above $75,000 but below the LCT threshold drop to a 25% FBT discount.
• From 1 April 2029: all eligible EVs below the LCT threshold get the 25% discount — the full exemption is gone.

Crucially, existing arrangements are grandfathered. If you sign a novated lease while the full exemption applies, you keep that treatment for the life of that lease, even past these dates — provided the arrangement isn't materially changed. That makes the timing of your decision, not just the car, financially significant.

What this means before you sign

• If you want the full break, the clock matters. A lease that commences before 1 April 2027 locks in the 100% discount for its term. Buyers eyeing an EV between roughly $75,000 and $91,000 have the most to gain from acting earlier, because that band loses the full discount first (from April 2027).
• Under $75,000 is the safe zone. Most mainstream EVs — Tesla Model 3/Y, BYD Atto 3 and Sealion, MG4, Kia EV5, GWM's range — sit here, so they keep the full discount through to 2029 even on new leases.
• Run the maths on your marginal rate. The FBT saving scales with your income tax bracket; it's largest for higher earners. Ask the leasing provider for a quote showing the pre-tax cost with and without the discount so you can see the dollar figure, not just the percentage.

The cars arriving into this market

Affordable, longer-range EVs keep landing, which matters because the under-$75,000 band is where the tax advantage is most durable.

Leapmotor B10 — Leapmotor has added a range-extender version of its small B10 SUV, priced from $37,888 before on-road costs. It's worth being precise about what this is: a range-extended EV (REEV), where a petrol engine runs only as a generator to recharge the battery and never drives the wheels. That delivers around 84km of WLTP electric range for daily use and up to ~900km of combined range, sidestepping range anxiety without a plug-in compromise. It carries a six-year/150,000km vehicle warranty, an eight-year/160,000km battery warranty and eight years of roadside assistance. Note that a range-extender is not a battery-electric vehicle, so it does not qualify for the EV FBT exemption.

Leapmotor C10 — the brand's first Australian model, a mid-size SUV, is being updated with a larger 81.9kWh battery (up from 69.9kWh) and refreshed styling, squaring up against the Geely EX5 and Tesla Model Y.

GWM Ora 5 — GWM has retired its original single-shape Ora hatch and built out the Ora 5 line, led by a small SUV from $33,990 drive-away, with a hatch body style confirmed to follow. At that price it sits firmly in the full-discount band and lines up against the BYD Atto 2 and MG4.

For households weighing the switch, an EV remains one of the more tangible ways to cut both running costs and emissions — but the tax settings now reward acting sooner rather than later if you want the full version of the discount. Confirm eligibility and current pricing with your leasing provider or the manufacturer before committing.

Sources

• ATO — Electric cars exemption
• ATO — FBT on plug-in hybrid electric vehicles
• ATO — Luxury car tax rate and thresholds
• Minister Bowen / DCCEEW — Fairer tax treatment to encourage affordable EVs
• PwC — Government announces phased changes to the FBT electric car exemption
• CarExpert — 2026 Leapmotor B10 Hybrid EV prices
• CarExpert — Leapmotor's first model to get refreshed styling, bigger battery
• Carsales — GWM Ora hatch axed as line-up expands