The Federal Government has announced proposed changes to the Fringe Benefits Tax (FBT) concession for electric vehicles (EVs), with a greater focus on supporting more affordable EVs while reducing the cost of the concession over time. For doctors this means that the current tax concessions available for a salary packaged novated lease will be changing over the next few years. The changes were announced as part of the 2026-27 Federal Budget and are not yet law.

For businesses and employees considering the purchase or salary packaging of an electric vehicle, the good news is that the current concession remains unchanged in the short term. However, the proposed changes mean that both vehicle value and timing will become increasingly important when assessing the long-term tax benefits of an EV arrangement.

Current rules

Eligible electric vehicles currently benefit from a full exemption from FBT, making them an attractive option for employer-provided vehicles and salary packaged arrangements, including novated leases. In many cases, this can significantly reduce the after-tax cost of owning and running an EV compared to a traditional petrol or diesel vehicle.

Vehicles must meet these conditions to be considered eligible for the exemption:

1. The car is a zero or low emissions vehicle (i.e. it is a battery electric vehicle or a hydrogen fuel cell EV).
2. We note that from 1 April 2025 a plug-in hybrid electric vehicle is not considered a zero or low emissions vehicle under FBT law.
3. The first time the car is both held and used is on or after 1 July 2022. If purchasing a second-hand vehicle, you will need to track the original owner of the vehicle to determine whether it was held before this date.
4. The car is used by a current employee or their associate.
5. Luxury car tax (LCT) has never been payable on the importation or sale of the car. Currently luxury car tax is not payable if the vehicle cost (excluding stamp duty and third party insurance) is under $91,661.

What is changing?

Under the proposal, eligible electric vehicles will continue to receive a full FBT exemption until 31 March 2027.

From 1 April 2027, transitional rules will apply depending on the value of the vehicle when it is first provided. The proposed treatment is as follows:

FBT years ending 31 March 2028 and 31 March 2029

• EVs costing $75,000 or less will continue to receive a full FBT discount.
• EVs costing more than $75,000 but below the fuel-efficient luxury car tax (LCT) threshold will receive a 25% discount on FBT.

From 1 April 2029 onwards

• EVs below the fuel-efficient LCT threshold will receive a permanent 25% FBT discount.
• EVs above the fuel-efficient LCT threshold will not qualify for the concession and will continue to be subject to the ordinary FBT rules.

Existing arrangements protected

One of the most important aspects of the proposal is the transitional relief available for existing arrangements.

Under the announced measures, eligible electric vehicles are expected to retain the FBT concession that applied when the arrangement first commenced. This means employees and businesses that entered into arrangements based on the existing rules should not be disadvantaged by changes that occur later.

For example:

• Eligible EVs valued at less than the LCT threshold (currently $91,661) and provided before 1 April 2027 are expected to retain the current full FBT exemption for the life of the arrangement.
• Eligible EVs valued at $75,000 or less and provided before 1 April 2029 are expected to retain the current full FBT exemption for the life of the arrangement.
• EVs valued between $75,000 and the fuel-efficient LCT threshold that are first provided between 1 April 2027 and 1 April 2029 are expected to receive the reduced 25% FBT discount.

As a result, the date the vehicle is first provided may be just as important as the vehicle’s purchase price when determining the tax outcome.

Why timing matters

For employees considering a novated lease or salary sacrifice arrangement, the proposed changes highlight the importance of reviewing plans sooner rather than later.

While EVs are expected to continue receiving favourable tax treatment, the level of concession available may be significantly different depending on:

• when the arrangement commences;
• when the vehicle is first provided, noting that the relevant date is when you take possession of the vehicle and not when you order it;
• the value of the vehicle; and
• whether the vehicle falls below the fuel-efficient LCT threshold.

This means two otherwise identical vehicles could potentially receive different tax outcomes depending on when the arrangement begins.

Choosing the right vehicle

The proposed changes also place greater emphasis on vehicle value. Broadly speaking:

• EVs valued up to $75,000 will continue to receive the most favourable treatment under the transitional rules.
• EVs valued above $75,000 but below the fuel-efficient LCT threshold will generally receive a reduced concession.
• EVs above the fuel-efficient LCT threshold will not qualify for the concession.

For employees considering higher-value electric vehicles, understanding where a vehicle sits relative to these thresholds may have a material impact on the after-tax cost of ownership.

What does this mean for you?

While the proposed changes do not remove the tax advantages of electric vehicles, they do change the landscape for future EV purchases and salary packaging arrangements. The long-term benefit available may depend on decisions made well before the permanent rules commence in April 2029.

If an electric vehicle purchase is already being considered as part of your business, remuneration or salary packaging strategy, it may be worthwhile reviewing your plans now to understand how the proposed changes could affect the available concessions and overall cost of ownership.

As always, the right approach will depend on your individual circumstances, cash flow requirements and business structure.

Contact Pilot

If you would like to discuss how the proposed changes may affect you, please contact Kristy Baxter, Angela Stavropoulos or your Pilot advisor on (07) 3023 1300.