What does the FBT exemption look like in 2026?
In short, the FBT (fringe benefits tax) exemption removes FBT on eligible electric vehicles priced under the luxury car tax threshold for fuel-efficient vehicles ($91,661 for FY26-27).
This makes EVs a more affordable option for Australians and gives drivers more incentive to leave petrol cars behind.
As well as the car itself, the exemption extends to associated running costs, including:
- Registration
- Insurance
- Repairs and maintenance
- Charging costs (excluding the cost of a home charging station)
The most common way Australians access these benefits is through a novated lease. Your EV costs are paid from your pre-tax salary, which means you don’t pay GST on the purchase price, your taxable income is reduced, and repayments come out automatically through payroll.
What does this look like in practice?
Under a fully maintained novated lease, your regular deduction covers both the car finance and the running costs.
The table below shows how a novated lease could affect your take-home pay.
| Expense category | Pre-tax deduction (per month) | What it covers |
| Car finance | $695 | Vehicle repayments, excluding GST (a 10% saving) |
| Running costs | $385 | Comprehensive insurance, registration, replacement tyres, and public and home charging |
| Total deduction | $1,080 | Total amount taken from your pre-tax pay |
The figures are based on a Tesla Model 3 RWD ($45,900 (before ORC)), a gross salary of $100,000 a year and a five-year lease term.
While a $1,080 deduction looks like a large chunk of your pay, your actual take-home pay would drop by around $715 a month. The remaining $365 is money that would otherwise have gone to the ATO as income tax.
Watch out for the balloon
Under ATO guidelines, a five-year lease requires a minimum residual (balloon) payment of 28.13% at the end of the term. In the example above, that equates to roughly $14,500. At that point, you can:
- Pay out the balloon and own the car outright
- Refinance the balloon into a new lease
- Sell or trade in the car to cover the balance
It’s worth factoring the balloon into your planning from day one so it doesn’t come as a surprise at the end of the lease.
The impact of the FBT exemption
The FBT exemption was introduced to increase EV adoption and reduce Australia’s reliance on fossil fuels.
Combined with higher fuel prices following the closure of the Strait of Hormuz, the policy appears to have accelerated uptake. According to the Electric Vehicle Council, a record 157,957 new EVs were sold across Australia between January and June, more than double previous demand.
What is changing?
From 1 April 2027
The Australian Government will begin scaling back the FBT exemption for EVs, with changes rolled out in two stages.
From 1 April 2027 to 31 March 2029
The full exemption will only apply to EVs priced at $75,000 or less. EVs priced above $75,000 and up to the luxury car tax threshold will instead receive a 25% FBT discount, meaning some FBT becomes payable.
From 1 April 2029
The full exemption ends altogether, and all eligible EVs under the luxury car tax threshold will move to the 25% discount.
Importantly, existing novated leases will be grandfathered. As long as your lease is in place before the relevant cut-off, you’ll keep the full exemption for the life of the lease. The changes are still subject to legislation passing Parliament.
Do you need to buy before 2027?
The answer mostly depends on the price of the car you’re considering.
| EV price | Deadline to lock in the full exemption | What happens if you wait |
| $75,000 or less | 31 March 2029 | Full exemption continues until April 2029, then the 25% discount applies |
| Over $75,000, up to the LCT threshold | 31 March 2027 | 25% FBT discount only, so FBT becomes payable |
| Above the LCT threshold | Not eligible either way | Full FBT applies |
If you’re looking at an EV over $75,000, it makes sense to finalise your novated lease before 1 April 2027 to secure the full exemption for the entire lease term. Demand is likely to build as the deadline approaches, so allow time for delivery and paperwork.
If you’re weighing up models under $75,000, there’s less urgency. You have until April 2029 to lock in the full exemption, which gives you time to compare models, wait for new releases and choose the right lease term for your budget. With more affordable EVs coming onto the market, waiting could even widen your choice.
Either way, the tax benefit is only one part of the decision. The car needs to suit your lifestyle, the lease term should match how long you plan to keep it, and the balloon payment needs a plan. Your employer will also need to offer novated leasing as part of salary packaging.
Ready to take the next step?
Whether you’re racing the April 2027 deadline or taking your time, we can help you compare novated lease options across a range of providers, work through the numbers for your salary and chosen car, and get your lease in place before the cut-off that applies to you.
Reach out to our team today to get started.
This article is general information only and doesn’t take into account your personal financial situation. Consider seeking independent tax advice before entering a novated lease.
