BUDGET 2026-2027: Electric vehicle FBT – Full exemption phased out, 25% discount made permanent
The Budget has finally resolved the uncertainty around the Electric Car Discount that has been building since the statutory review was announced in December 2025. The full FBT exemption will be phased out and replaced with a permanent 25% FBT discount - but existing arrangements are grandfathered, and the phase-out timeline gives businesses and employees time to plan.
The current position
Currently, eligible battery electric vehicles and hydrogen fuel cell vehicles provided to employees - typically through novated lease or salary packaging arrangements - are exempt from Fringe Benefits Tax, provided the vehicle's value was below the luxury car tax threshold for fuel-efficient vehicles at first purchase. PHEVs lost eligibility for new arrangements from 1 April 2025.
What the Budget changes
The Budget introduces a transition from a full FBT exemption to a permanent 25% FBT discount, applied through a 15% statutory formula rate (reduced from the standard 20%). The table below summarises the transitional rules:

| Period | Vehicle price | FBT treatment |
|---|---|---|
| Before 1 April 2029 | Up to $75,000 | 100% FBT discount (0% rate) - grandfathered |
| 1 Apr 2027 – 31 Mar 2029 | $75,001 to fuel-efficient LCT threshold | 25% FBT discount (15% statutory rate) |
| From 1 April 2029 | Up to fuel-efficient LCT threshold | Permanent 25% FBT discount (15% statutory rate) |
| Any date | Above fuel-efficient LCT threshold | Standard 20% FBT statutory rate applies |
The existing 20% statutory FBT rate continues to apply to all other cars, including electric vehicles above the fuel-efficient LCT threshold, and to all non-electric vehicles.
What grandfathering means in practice
Existing arrangements are grandfathered at whatever FBT discount rate applied when the arrangement commenced, regardless of vehicle price. This means that if your current novated lease was entered into while the full FBT exemption applied (and you have not made any material changes such as refinancing or replacing the vehicle), your exemption continues for the life of that arrangement, even after 1 April 2027 or 1 April 2029.
A material change – such as extending, refinancing, or replacing the vehicle – will likely restart the clock and expose the arrangement to the current rules at the time of the change.
Reportable fringe benefits
Importantly, even under the full exemption regime, the value of an eligible EV benefit must still be reported as a Reportable Fringe Benefits Amount (RFBA) on the employee's income statement, calculated as if the standard 20% FBT statutory rate applied. This RFBA does not attract income tax but can affect income-tested obligations including the Medicare Levy Surcharge, HECS-HELP repayments, and family payment entitlements.
Under the new permanent 25% discount regime, the RFBA calculation method remains the same - based on the 20% statutory rate.
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