If your business offers salary packaging for electric vehicles, or you have been thinking about packaging an EV yourself, there is a deadline worth having in your diary: 31 March 2027.
The Federal Government has announced a staged wind-back of the current FBT exemption for electric vehicles, following a statutory review released in May 2026. The full exemption does not disappear overnight, but the window to make the most of the current rules is finite, and the planning decisions you make in the next twelve months could have a meaningful impact on cost outcomes for both businesses and employees.
Here is what is changing, when, and what to think about now.
The current FBT exemption for eligible EVs has been one of the most effective drivers of EV adoption in Australia, particularly through novated leasing. In its first three years, the policy contributed to around 64,000 additional battery EVs on Australian roads, with uptake growing across metropolitan, regional, and outer-suburban areas.
But the review also found some structural issues. Higher-income employees benefited disproportionately, and the cost to the Budget was growing quickly. The Government's response is not to remove the concession entirely, but to phase it back in a way that keeps the focus on more affordable vehicles while managing long-term fiscal sustainability.
The changes are expected to save the Budget an estimated $1.7 billion over five years.
Nothing changes yet. The existing full FBT exemption remains in place for eligible EVs priced below the Luxury Car Tax (LCT) threshold, which sits at approximately $91,387 for fuel-efficient vehicles in 2025-26.
For businesses and employees using novated leases or salary packaging, the current arrangements continue without any adjustment during this period.
This phase is designed to keep competitive pricing pressure on manufacturers and encourage more affordable EVs into the Australian market alongside the Government's New Vehicle Efficiency Standards.
All eligible EVs under the LCT threshold receive a flat 25% FBT discount, regardless of price. The full exemption is no longer available for any vehicle from this date.
One important note: the import tariff exemption for qualifying EVs remains permanently in place across all phases.
This is a question many employees and businesses will be asking immediately. The Government has indicated that existing arrangements will be protected under grandfathering provisions. Current leases should continue to qualify for the existing FBT concessions they were entered into under.
The precise scope of this protection will be clarified in draft legislation. If you have a current novated lease or salary packaging arrangement in place, it is worth monitoring this as further detail emerges.
The single most important timing consideration is 31 March 2027. Entering a novated lease arrangement before that date locks in the full exemption for the duration of that lease, subject to the grandfathering provisions. Anyone who has been sitting on the fence about packaging an EV should be actively weighing up their options now rather than waiting.
The growing availability of EVs in the $30,000 to $40,000 range means the full exemption remains genuinely accessible, not just for higher earners.
Review your salary packaging model ahead of the April 2027 transition. Under Phase 2, EVs at or below $75,000 remain highly attractive because the full exemption still applies. Above that threshold, the 25% discount still provides a meaningful concession but the value proposition shifts and employees will need to weigh up whether the numbers still work for their situation.
Businesses with vehicles that are predominantly used for work purposes may see limited direct FBT impact, but reviewing total cost of ownership is still worthwhile. Factor in FBT liability, running costs, and charging infrastructure when modelling decisions about fleet composition from 2027 onwards.
A growing used-EV market may provide cost-effective alternatives as more vehicles come off lease cycles. For businesses and individuals where new vehicle thresholds become restrictive under Phase 2, the second-hand market is worth watching.
EV adoption in Australia is accelerating regardless of the policy changes. EV and PHEV sales reached 22.9% of new vehicles in March 2026, up from just 1.8% in May 2022. The direction of travel is clear.
The phased wind-back does not reverse that momentum. It recalibrates the incentive toward more affordable vehicles and ensures the concession remains sustainable over the long term. For most employees and businesses operating in the sub-$75,000 price range, Phase 2 still offers a compelling proposition.
The key shift is in the planning horizon. The current full exemption will not be here indefinitely. Decisions that were easy to defer twelve months ago are now worth making before 31 March 2027.
The phased wind-back does not change the direction of EV adoption in Australia - but it does change the planning horizon. For employees considering a novated lease and businesses reviewing fleet or salary packaging, the full exemption is still available now. That will not always be the case.
If you want to understand what the changes mean for your situation, our team can walk you through the options and help you move at the right time.
Book a session with Trekk Advisory and let's map out your best path forward before the transition begins.
Trekk Advisory provides accountant-led tax, bookkeeping, and advisory services for Australian business owners. This article is general in nature and does not constitute personal advice. Please speak with a qualified adviser regarding your specific circumstances.