The current rules (until 31 March 2027)
A car fringe benefit is exempt from FBT if all of these hold:
- The car is a battery electric or hydrogen fuel-cell vehicle. Plug-in hybrids lost eligibility on 1 April 2025 (except grandfathered pre-existing commitments).
- It was first held and used on or after 1 July 2022.
- Luxury car tax has never been payable on it. In practice: the first retail sale was under the fuel-efficient LCT threshold, which is $91,661 for 2026-27.
For a novated lease, exemption means the whole lease payment can come out of pre-tax salary with no FBT and no employee contribution required, which is why the sums favour EVs so heavily. Our novated lease calculator models the exempt and non-exempt paths side by side.
Reportable fringe benefits still apply
Exempt doesn't mean invisible. The benefit's grossed-up value still lands on your income statement as a reportable fringe benefit, and that amount counts towards HECS/HELP repayment income, Medicare levy surcharge income and various means tests. If you have a HELP debt, an "FBT-free" EV lease can push your compulsory repayment up; the mechanics are in our guide to what counts as repayment income.
The phase-down: draft law, not yet passed
Status at 5 October 2026: announced in the 2026-27 Budget (5 May 2026). Treasury published draft legislation and explanatory materials for consultation from 11 to 28 September 2026; consultation has closed and the bill has not yet been introduced to Parliament. Until it passes, everything below is proposed law.
Under the draft, what matters is when the commitment to provide the car was made (when the lease became financially binding), not when you take delivery:
| Commitment made | Base value $75,000 or less | Over $75,000, under LCT threshold |
|---|---|---|
| Before 1 Apr 2027 | Fully exempt until the commitment ends | Fully exempt until the commitment ends |
| 1 Apr 2027 to 31 Mar 2029 | 100% discount (no FBT) | 25% discount (15% statutory rate) |
| From 1 Apr 2029 | 25% discount (15% statutory rate) | 25% discount (15% statutory rate) |
The discounts work through the statutory formula rate (normally a flat 20% of the car's base value), so "25% discount" means a 15% statutory rate rather than 20%, not a 25% cut in your lease cost. The $75,000 test uses the car's base value at the time your employer first holds it.
What ends a grandfathered lease early
The draft explanatory materials list events that count as a new commitment, which moves the car onto whichever rule applies on that date:
- Refinancing the car.
- Changing the lease terms, such as the lease length or the residual value.
- Adding accessories that increase the lease payments (tinting, bull bars, roof racks).
- Changing employers, even within the same corporate group, and re-novating the lease.
So a pre-April 2027 lease is only as safe as your job and your contract. If you might change employers within the lease term, price in the post-2027 rate for the remaining years. Ending a lease early and re-signing purely to keep the exemption can also be caught by the general anti-avoidance rules, according to the same document.
What this means practically
- Leases already running: unaffected, as long as none of the events above happens.
- Signing before 31 March 2027: full exemption for the life of that commitment. The test is when the lease became financially binding, so leave a margin before 31 March for paperwork rather than signing on the last day.
- EVs over $75,000: these are the cars that lose the most from 1 April 2027. On a $80,000 car, the 15% rate gives a taxable value of $12,000 a year instead of nil, before any employee contribution.
- Planning around the post-2027 rules: treat them as draft law. Parliament can and does amend measures like this.
- The broader decision: FBT is only one input. Interest, fees and the residual also shape a lease quote; see novated lease vs car loan and the residual values guide.
Frequently asked questions
Do plug-in hybrids (PHEVs) still qualify?
Generally no. The PHEV exemption ended 1 April 2025. It survives only for arrangements with a financially binding commitment made before that date, and any new commitment (a lease extension, re-novation, employer change or altered payments) ends the grandfathering.
Sources
Figures on this page come from the following primary sources. The date is when we last checked the page against the source.
- Electric cars exemption (ATO), checked 5 October 2026.
- FBT on plug-in hybrid electric vehicles (ATO), checked 5 October 2026.
- Sustainable fringe benefits tax treatment of electric cars: exposure draft and explanatory materials (Treasury), checked 5 October 2026.
- Electric car discount: more sustainable FBT treatment of electric cars (ATO), checked 5 October 2026.
- Fairer tax treatment to encourage affordable EVs (media release, 5 May 2026) (Treasurer), checked 27 July 2026.
- Luxury car tax rate and thresholds (ATO), checked 27 July 2026.
Related
EV FBT 2027 changes calculator: what a lease costs if signed before or after 1 April 2027.PHEV novated lease calculator: the plug-in hybrid case, with the grandfathering check.Novated lease calculator: EV vs petrol, lease vs loan vs cash, balloon included. Novated lease vs car loan: where the savings really come from. What counts as HECS repayment income: why an exempt EV can still raise your HELP repayment.
Figures current as at 5 October 2026; phase-down status re-verified against the Treasury consultation page on 5 October 2026. Sources on our methodology page. General information only, not financial advice.