With petrol prices facing continued volatility and countries around the world moving towards electric vehicles, EVs are becoming an increasingly attractive option for Australian drivers and businesses.
Australia has also seen strong growth in electric vehicle sales in recent years, especially over the last 12 months. Government incentives and tax concessions have helped encourage the shift, while fuel costs and growing interest in lower-emission vehicles have given more Australians a reason to consider making the switch.
But the tax treatment that has helped make eligible EVs particularly attractive is changing.
The Australian Government has announced changes to the fringe benefits tax (FBT) treatment of eligible electric cars. From 1 April 2027, the full FBT exemption will become more targeted, before moving towards a permanent 25% FBT discount from 1 April 2029.
For employees considering an EV through salary packaging, as well as businesses buying vehicles for work or providing them to employees, these changes could affect the tax bottomline.
If you’re thinking about buying an EV, it’s worth understanding the rules before making a decision.
How does the EV tax benefit currently work?
Under the current rules, an eligible electric car provided by an employer to an employee for private use can be exempt from FBT, provided certain conditions are met. Some associated car expenses can also be exempt.
This can make an EV particularly attractive under arrangements such as salary packaging or a novated lease, as the employer may not have to pay FBT on the private use of the eligible vehicle.
The exemption does not apply to every electric vehicle. For example, the car must meet specific eligibility requirements, and plug-in hybrid electric vehicles generally stopped qualifying for the exemption from 1 April 2025.
Our guide to FBT exemptions for electric vehicles covers the existing requirements in more detail.
What is changing from 2027?
The Government has announced a three-stage transition to a more limited EV FBT concession.
Until 31 March 2027
The current EV FBT discount continues in full for eligible electric cars.
From 1 April 2027
The treatment will depend on the value of the EV.
Electric cars costing $75,000 or less can continue to receive the full FBT exemption if the relevant fringe benefit arrangement commences before 1 April 2029.
For eligible EVs costing more than $75,000 but within the applicable fuel-efficient luxury car tax threshold, the FBT discount will reduce to 25%.
From 1 April 2029
The full FBT exemption will transition to a permanent 25% FBT discount for eligible electric cars within the applicable threshold.
In other words, the current full exemption is not simply disappearing. It is being reduced over time, with the Government moving towards a permanent partial FBT discount.
What does this mean if you are considering an EV?
If you are already thinking about buying an EV, the timing and price of the vehicle may become more important.
For example, an eligible EV costing $75,000 or less may continue to receive the full FBT exemption if the relevant arrangement starts before 1 April 2029.
For more expensive EVs, the tax benefit will change sooner, from 1 April 2027.
This does not necessarily mean you should rush out and buy an EV before April 2027. The purchase price, finance or lease costs, business use, running costs and your overall tax position all need to be considered.
What if you are using an EV for business?
Buying an EV through a business does not automatically mean the vehicle is subject to FBT.
There are two separate tax considerations.
If the vehicle is used for business purposes, normal tax rules can apply to the business use of the vehicle, including deductions and depreciation where the relevant requirements are met.
FBT becomes relevant when a business provides certain benefits to an employee, such as making a car available for their private use.
So, if your business is considering an EV for work, it is important to look at more than just the FBT concession. The way the vehicle is owned, financed and used can all affect the tax outcome.
Because FBT can apply to a range of benefits provided to employees, understanding how FBT works for employers can be a useful starting point.
What about employees and salary packaging?
For employees, the EV FBT concession can be particularly relevant if you are considering a novated lease or another salary packaging arrangement.
An eligible EV can currently be provided without FBT.
The changes from 2027 mean the potential tax savings from an EV salary package may also change, particularly for higher-priced vehicles.
The numbers can be different from one person to another, so it is worth comparing the tax outcome with the overall cost of the vehicle rather than looking at the FBT benefit alone.
What happens to existing EV arrangements?
One important point is that existing arrangements are treated differently from new arrangements.
The Government has confirmed grandfathering, that is, eligible EVs will retain the FBT discount that applied when the relevant fringe benefit arrangement commenced.
This means the date an arrangement starts can be important when assessing how the new rules may affect you.
Should you buy an EV before April 2027?
There is no single answer.
If you are already considering an EV, the upcoming changes may be a good reason to review your options sooner rather than later. But the cheapest tax outcome is not necessarily the cheapest overall vehicle.
You should consider the vehicle’s price, how it will be used, the ownership or leasing structure, running costs and your broader tax position.
The rules also involve several different dates and thresholds, so getting the timing right can make a difference.
Need help with the new EV and FBT rules?
If you’re thinking about buying an EV, setting up a salary packaging arrangement, or providing vehicles to employees, it’s worth understanding the tax implications before you make a decision.
And with the FBT rules changing over the next few years, it can be difficult to keep track of what applies and when.
If you’re unsure how the changes affect you or your business, contact Chan & Naylor. Our tax specialists can help you understand the rules, assess your options and make sure you’re getting the right tax treatment.
Get in touch with Chan & Naylor to discuss your situation.
Frequently asked questions
Will the EV FBT exemption end in 2027?
No. The current policy of the full exemption will change from 1 April 2027, but eligible EVs costing $75,000 or less can continue to receive the full exemption where the relevant arrangement commences before 1 April 2029. From 1 April 2029, the Government plans to move to a permanent 25% FBT discount for eligible EVs.
Do all electric cars qualify for the FBT concession?
No. Specific eligibility requirements apply. Plug-in hybrid vehicles generally stopped qualifying as zero or low-emissions vehicles for FBT purposes from 1 April 2025, subject to transitional arrangements.
Can a business still claim deductions for an EV?
Potentially, yes. The FBT rules and ordinary business tax deductions are separate issues. The tax treatment will depend on factors such as how the vehicle is owned and how much it is used to generate assessable income.
Do sole traders get the EV FBT exemption?
No. FBT applies to benefits provided by an employer to an employee or its director(s), so a sole trader cannot use the employee FBT exemption for their own vehicle. Separate rules may apply to deductions for business use.
Is it better to buy an EV before April 2027?
Not necessarily. The timing may be important, but the right decision depends on the vehicle, price, ownership structure, usage and your individual or business tax position.
About Chan & Naylor
Since 1990, Chan & Naylor has partnered with business owners and property investors in managing their taxes and building a tax-effective wealth. Choosing Chan & Naylor means you’re not just selecting a service provider; you’re gaining a partner aligned with your financial goals. You’ll have access to a dedicated client manager supported by a team of accountants that specialises in business and property tax.
Disclaimer
This article serves as general information only and may not account for the unique circumstances of individual readers. For personalised and strategic solutions tailored to your specific situation, we invite you to seek professional advice from Chan & Naylor. Our highly experienced team is dedicated to helping you navigate the complexities of Australian taxation, ensuring that your financial strategies align with the latest regulations. Contact us today to embark on a path of informed and customised tax planning for your property investments.
