Government to pare back FBT discount for EVs

The government will pare back electric vehicle (EV) fringe benefit tax exemptions in next week’s budget, a move ministers say will save the budget $1.7 billion over the next five years.

In a joint statement on Tuesday (5 May), Treasurer Jim Chalmers and Minister for Climate Change and Energy Chris Bowen announced that the EV FBT discount would be dialled back from 100 per cent to 25 per cent over the two years from April 2027 to April 2029.

The ministers said that the new rules would encourage manufacturers to offer more affordable EVs in the Australian market.

“These adjustments will deliver fairer and more financially sustainable tax treatment for EVs,” they said.

“The current New Vehicle Efficiency Standards has seen a dramatic increase in the availability of affordable EV models, and now is the right time to focus the FBT exemption on these cars.”

Speaking to Accounting Times, RSM Australia Business Advisory senior manager Thomas Leslie said the FBT discount had been effective in boosting EV uptake, with Treasury figures estimating that the tax settings prompted the purchase of an additional 64,000 EVs over its first three years, in comparison to business-as-usual projections.

"From a client perspective, we've seen significant uptake of EVs, specifically for the fringe benefits tax exemption, to advantage of it. Which is obviously the intended purpose, because a lot of these clients have gone out and bought EVs where they ordinarily might not have considered an EV," he said.

He added that it was hard to estimate how the pare-back would impact future EV purchases, but noted that the reduction in the discount was "significant." Under the new scheme, an $80,000 EV would see its FBT bill jump from $0 to approximately $11,700, being 20 per cent of the car's value with a 25 per cent discount.

"From a from a tax perspective, yeah, we'd like to see the the exemption continue, because it well and truly has led to more business owners and employees purchasing EVs to get the fringe benefits tax benefits. I think less people will buy them purely on the basis that there is a fringe benefits tax exemption," he said.

The exemption would be phased out over three stages, with the full FBT discount remaining until the end of March 2027. From April 2027 to April 2029, the full discount would continue to apply for EVs costing $75,000 or less.

From April 2029 onwards, all EVs under the luxury car tax threshold would continue to receive a permanent 25 per cent discount on payable FBT.

Chalmers and Bowen stipulated that existing leases would not be impacted by the changes, and eligible EVs would continue to be exempt from import tariffs.

“The electric car market has rapidly matured since we came to Government, and these changes will ensure our tax settings are still suitable,” the ministers said.

“There were only two EVs under $40,000 – now there are around 10 and, for the first time, one model under $30,000. In March 2026, 22.9 per cent of new cars sold were electric or plug‑in hybrid, up from 1.8 per cent in May 2022.”

They added that retaining the 25 per cent FBT discount would continue to provide some support for those who choose to switch to EVs.

“These commonsense changes have been informed by the Electric Car Discount Review, which found that the scheme had been successful at encouraging uptake, reducing emissions, and softening some of the impact of global oil price fluctuations,” they said.

Leslie said the tax change hadn't been unexpected, given the scheme's popularity and the government's focus on bolstering the budget position.

"I think the concession has definitely had it assisted with uptake of EVs in Australia, but I think it's been more popular than they initially imagined," he said.

"And you pair that with a government that is looking for revenue, it makes sense that they're looking to wind back this concession now."