Electric vehicles are no longer a fringe option. By late 2025, EVs make up a growing share of new car purchases across Australia, supported by lower running costs, improving infrastructure, and generous tax concessions.
One of the most influential incentives has been the Federal Government’s Electric Car Discount, introduced in mid-2022. For many businesses and employees, it has significantly reduced the after-tax cost of owning or leasing an eligible EV.
That incentive is now under formal review. While no changes are imminent, this is a timely opportunity to understand how the rules work, assess whether they suit your circumstances, and consider the importance of timing.
How the Electric Car Discount Works
Despite the name, the Electric Car Discount is not a cash rebate. Instead, it operates through a series of tax concessions that can materially reduce the real cost of an eligible vehicle.
Fringe Benefits Tax exemption
The most valuable component is the FBT exemption.
Where an eligible electric vehicle is provided to an employee for private use, that private use is exempt from FBT. Without the exemption, FBT can apply at an effective rate of up to 47%. Removing that cost can translate into thousands of dollars in annual savings.
Because FBT outcomes depend heavily on structure and usage, these arrangements should be reviewed as part of a broader tax advisory discussion rather than in isolation.
Key points to be aware of:
- The exemption applies to battery electric vehicles and hydrogen fuel cell vehicles
- Plug-in hybrid vehicles are no longer eligible for new arrangements entered into from 1 April 2025
- The vehicle must be first held and used after 1 July 2022
- The purchase price must be below the luxury car tax threshold at the time of first purchase
Higher luxury car tax threshold
Fuel-efficient vehicles, including EVs, benefit from a higher luxury car tax threshold. For the 2025–26 year, this threshold is $91,387, compared to $76,950 for other vehicles.
This can prevent the 33% luxury car tax applying to part of the purchase price, which is particularly relevant for mid-to-upper range EV models.
Reduced import costs
Some electric vehicles are also exempt from the standard 5% customs duty. While not universal, this exemption can further reduce upfront acquisition costs where it applies.
Taken together, these concessions have made EVs commercially attractive. Lower energy costs, reduced servicing requirements, and solid resale values have strengthened the case, particularly for salary packaging arrangements and small business fleets.
Why the Rules Are Being Reviewed
A statutory review of the Electric Car Discount is now underway, driven largely by cost.
Uptake has exceeded initial expectations, increasing the long-term impact on the Federal budget. As a result, the Government is reassessing whether the current settings remain appropriate.
The review will consider:
- Whether the concession is still needed to drive EV adoption
- Whether eligibility should be refined, such as limiting benefits by vehicle type or price
- How the discount interacts with other policy settings, including the National Vehicle Emissions Standard commencing in 2025
Public consultation is in progress, with a final report expected in mid-2027. Importantly, there has been no indication of immediate changes, and any reforms are more likely to apply prospectively.
What This Means in Practice
While reviews can create uncertainty, the current rules remain legislated.
From a practical perspective:
- If you are planning to replace a vehicle within the next 12–24 months, this is a sensible time to review your options
- Existing arrangements are expected to be grandfathered, reducing the risk of changes affecting vehicles already in place
- Eligibility details matter, particularly the luxury car tax threshold and timing of first use
- Charging infrastructure and related benefits do not automatically qualify for FBT exemptions and should be assessed separately
For businesses, these decisions often sit alongside wider business advisory considerations around remuneration, fleet costs, and cash flow.
Next Steps for Businesses and Employees
The Electric Car Discount remains one of the most valuable concessions available for employee vehicles. While the review introduces longer-term uncertainty, the current settings can still deliver meaningful tax and cash-flow savings when structured correctly.
If you are considering an electric vehicle, either personally or through your business, it’s worth reviewing the numbers early. Aligning vehicle decisions with your broader business and cashflow plan can help ensure the strategy supports both immediate savings and longer-term financial goals. You can also download our Cash Flow Playbook below for practical guidance on managing cash flow and making more confident financial decisions.
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