EV Tax Changes: Update

The Federal Government has announced changes to how electric vehicles (EVs) will be treated for Fringe Benefits Tax (FBT).

The popular FBT exemption isn’t disappearing but is being reshaped. The EV exemption has made salary packaging an EV significantly more cost-effective than traditional vehicles. This has had the desired impact of the policy as EV availability and adoption has increased quite rapidly, with new car sales for electric and plug-in hybrid vehicles up more than 20% since the policy was first introduced in 2022.

What’s Changing?

The Government has announced a phased reform of the EV FBT concession, shifting away from a full exemption to a 25% discount.

Until 31 March 2027:

• No change

• Eligible EVs still pay 0% FBT

• This is the best time to act

From April 2027:

• Full exemption only for EVs under $75,000 (under the luxury car tax threshold)

• More expensive EVs get a smaller discount (25%)

From April 2029:

• All EVs move to a 25% discount

• The full tax-free benefit ends

Importantly, existing leases will not be impacted. This also means if you are thinking about salary packaging an EV, before 31 March 2027 would be the time.

Why is this happening?

The EV market has grown quickly:

• More affordable EV models are now available

• Many more people are buying EVs

• The original incentive is no longer needed at the same level as adoption has increased. At the same time, the changes are expected to save the Budget around $1.7 billion over five years.

What this means in practice

• Entering into an arrangement before April 2027 may lock in more favourable FBT treatment

• Vehicle choice will be more important, with lower-cost EV’s receiving the greater discount

• Salary packaging an EV is still likely to remain more tax-effective than a normal vehicle, but the gap narrows

• For businesses currently offering EVs, you may need to review current leases and vehicle policies, and considered whether to adjust caps or eligible vehicle lists

How we’re helping clients navigate this

Given the phased nature of these changes, there is an opportunity to take a proactive approach. We’re currently working with clients to:

• Model after‑tax outcomes under current vs future rules

• Review existing salary packaging arrangements

• Identify whether bringing forward EV purchases makes sense

• Align vehicle decisions with broader remuneration strategies

If you’re thinking about an EV, or want to review your current arrangement, reach out to our team to see how you can save more and plan smarter.

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