EV tax breaks to shrink from 2027 after Treasury reveals $2b cost blowout
At a glance:
- Treasury review found FBT exemption cost $2 billion over its first three years
- FBT savings to reduce by more than $17,000 for a $50,000 EV
- EV Discount FBT waiver scheme reducing to 25 per cent over three years
- Current EV buyers unaffected until 2027
EV buyers using novated leases could lose more than $17,000 in tax savings under Federal Government changes to the Electric Car Discount.
While the government has confirmed it will not remove its Electric Car Discount Bill, which allows eligible drivers to access a Fringe Benefits Tax (FBT) exemption on electric vehicles through salary packaging and using novated lease, the scheme will progressively be reduced over the next three years.
The reduction follows a Treasury review which found the FBT exemption had cost far more than expected — about $2 billion in its first three years, compared with an original estimate of $205 million over four years.
The figures point to strong interest in electric transport, but the review also noted additional costs that were not fully quantified, including compliance costs for buyers, employers, importers and intermediaries, market distortions, and revenue impacts from the import tariff exemption, GST and fuel excise.
The review also found broader benefits from the scheme including an estimated $430 million in health benefits, thanks to lower air pollution, and $1.1 billion in overlooked fuel cost savings, rising to $1.3 billion when PHEVs are included.
Still, the large cost of the EV benefit scheme plus questions around equity – higher income earners benefitting more and the exclusion of those who could not access salary packaging/novated leases – has prompted calls for the scheme to be scaled back, better targeted or phased down.
What changes and when for EV buyers?
Until March 2027
Eligible EVs remain fully exempt from FBT.
April 2027
Only EVs priced under $75,000 keep the full exemption.
More expensive EVs receive a smaller 25 per cent FBT discount, up to the Luxury Car Tax threshold
April 2029
All eligible EVs move to a reduced 25 per cent FBT discount instead of a full exemption.
How will the reduced Electric Car Discount Bill affect buyers?
Under the current scheme, buyers using a novated lease can save about $4700 a year on a $50,000 EV — or roughly $23,500 over five years.
Under the proposed changes, those savings would fall to about $1175 a year from 2029, cutting total five-year savings to around $5875.
That means buyers could end up paying an extra $17,625 over the life of a typical five-year lease compared with today’s scheme.
Recent data from the Australian Automobile Association’s EV Index shows EV sales have hit record highs, with 34,435 battery electric vehicles sold in the March quarter, equal to 12.25 per cent of new light vehicle sales. Plug-in hybrids also reached a record 19,184 sales, or 6.82 per cent of the market, even as overall new light vehicle sales fell to the second-lowest quarterly result since the index began in 2023.
PHEVs were removed from the scheme on 1 April 2025. Treasury’s review found PHEV sales remained well above pre-EV Discount levels after the change and said it was not necessary to reinstate their eligibility.
