EV FBT exemption wind-back — 2026 Budget announcement explained

By changyang1230 · Updated 11 October 2026

Draft legislation released — 10 September 2026

The phased wind-back announced on 4 May 2026 now has exposure draft legislation and explanatory materials. Consultation closed on 28 September 2026. The bill has not yet been introduced to Parliament, so it is not yet law and details can still change before it passes. Sections that depend on the draft’s exact wording are marked Draft or set in a dashed amber box, and may change.

What is an exposure draft?

An exposure draft is the proposed text of a bill, published for public comment before it goes to Parliament. Treasury considers the submissions, may amend the wording, and then the bill is introduced, debated and passed. The headline policy (the $75,000 cutoff, the 25% discount, the 2027 and 2029 dates) rarely changes at this stage; finer details can.

On 4 May 2026, the federal treasurer announced the partial wind-back of the Fringe Benefits Tax (FBT) exemption for electric vehicles. The changes are structured across three stages, with different rules applying depending on when your lease commenced and the value of the vehicle.

Notably, the announcement provides genuine lead time rather than an immediate rug-pull: most people currently committed to a lease are not affected until at least 1 April 2027, and many existing leases are grandfathered through to their conclusion.

The complete picture: who is affected, and when

The table below sets out every scenario depending on when you committed to the lease, the vehicle’s FBT value, and the FBT year:

Lease committed toVehicle FBT value1 Apr 2027 – 31 Mar 20291 Apr 2029 onward
Before 1 Apr 2027≤ $91,387 1FBT-exempt 2FBT-exempt 2
Before 1 Apr 2027> $91,387 1Full FBTFull FBT
1 Apr 2027 – 31 Mar 2029≤ $75,000100% FBT discount (no FBT) 2100% FBT discount (no FBT) 2
1 Apr 2027 – 31 Mar 2029$75,001 – $91,661 325% FBT discount (75% of FBT payable)25% FBT discount (75% of FBT payable)
1 Apr 2027 – 31 Mar 2029> $91,661 3Full FBTFull FBT
1 Apr 2029 or later≤ fuel-efficient LCT threshold 3n/a25% FBT discount (75% of FBT payable)
1 Apr 2029 or later> fuel-efficient LCT threshold 3n/aFull FBT
Discount, not exemption

Under the draft, cars committed to from 1 April 2027 are not technically “exempt”. The statutory fraction in the FBT formula is cut by 100% (to nil) or by 25% (from 0.2 to 0.15). A 100% discount works out the same as the old exemption: no FBT, and the full reportable fringe benefit amount. The 25% discount is a different story for your reportable income.

What is ‘FBT value’?

FBT value (also called FBT base value) is the pre-on-road purchase price — the drive-away price minus stamp duty, CTP insurance, registration, and plate fees. Any Luxury Car Tax (LCT) payable is included, not excluded. Tesla labels this figure as “vehicle subtotal” on its order summary.

For leases committed to before 1 April 2027, two additional criteria apply under the current exemption:

  • the car must have been first held and used on or after 1 July 2022, and
  • Luxury Car Tax must never have been payable on it.

Draft For leases committed to from 1 April 2027, the draft drops both. See eligibility under the new rules below.

Key observations from the table

The tiers below are the policy as announced and as written in the exposure draft. They are not law until the bill passes.

Existing leases entered before 1 April 2027 are substantially protected. If your car’s FBT base value was at or below the applicable LCT threshold when you signed, your lease continues FBT-exempt until it concludes — regardless of whether that end date falls after 2027 or 2029.

New leases committed to between 1 April 2027 and 31 March 2029 face a sliding scale. Cars valued at $75,000 or less get a 100% FBT discount, which works out the same as the exemption, for the life of that lease. Cars between $75,001 and the LCT threshold get a 25% discount from the outset, meaning 75% of the normal FBT applies. Cars above the LCT threshold pay full FBT, as they always have.

New leases committed to from 1 April 2029 onward can no longer get the full discount. Cars within the LCT threshold get the 25% discount (75% of the normal FBT applies), and cars above it pay full FBT.

It’s the commitment date that counts

Exposure draft — not yet law

The dates above are commitment dates, not delivery dates or lease start dates. The draft’s explanatory materials describe a commitment as the point at which the arrangement is financially binding and cannot be backed out of.

In practice: if you sign and are bound to a novated lease in March 2027 for an EV that is delivered in June 2027, you are on the pre-April-2027 rules. If you are still negotiating on 1 April 2027, you are not. Anyone ordering in early 2027 should ask their provider exactly when their arrangement becomes binding.

Commencement works the same way if Parliament is slow: the draft starts on the later of 1 April 2027 and the first quarter-day after Royal Assent, but applies back to benefits provided from 1 April 2027 either way.

What ends your grandfathering

Exposure draft — not yet law

Grandfathering lasts as long as the commitment it is attached to. The explanatory materials list events that count as a new commitment for the same car. Each one moves the car onto whatever rules apply on the date of the new commitment:

  • Refinancing the car.
  • Changing the lease terms, for example extending the term or changing the residual.
  • Fitting accessories that increase the lease payments, such as window tinting, an entertainment system, roof racks or a bull bar.
  • Changing employer, even within the same corporate group. The benefit must be provided to a current employee, so the commitment ends when you leave. A new employer taking over the lease on the same car is a new commitment.
  • Moving to another government department, even if the car stays with the original employer.
  • Re-leasing or extending on the same car when the lease ends.

The job-change point matters most. A nurse who moves hospitals in 2028 keeps the same car but loses the pre-2027 exemption on it, and the car is then tested on its value under the 2027–29 rules (or the 2029 rules, after 31 March 2029).

The draft also warns that ending an existing lease early and immediately starting a new one, purely to keep the old exemption or lock in the 100% discount before 2029, may be caught by the general anti-avoidance rules.

Eligibility under the new rules (used EVs)

Exposure draft — not yet law

For leases committed to from 1 April 2027, the draft has only three tests (new section 9A(2) of the FBT Act):

  1. the car is a battery electric or hydrogen fuel cell vehicle (plug-in hybrids are not included);
  2. the benefit is provided to a current employee; and
  3. the car’s base value when your novated lease starts is at or below the fuel-efficient LCT threshold for that financial year.

The draft’s own wording is the base value “at the earliest holding time”, which the explanatory materials describe as when the employer first “holds” the car. Your employer never owns the car: the financier does. But in FBT law a car is “held” by whoever leases it, and the novation agreement makes your employer the lessee for as long as you work there. So for a novated lease, the earliest holding time is in practice the start of the novated lease, and the base value is the car’s price at that point.

Two things follow, if passed as drafted:

  • The 1 July 2022 and “LCT never payable” tests disappear for new leases. A used EV first sold before July 2022, or one that originally attracted LCT, would be tested only on its price when your novated lease starts.
  • Base value for a used car is its price when your lease starts, the figure on the invoice the financier pays. The $75,000 cutoff for the 100% discount, and the LCT threshold for the 25% discount, apply to that price, not to the car’s original price. A used EV bought for $60,000 that cost $85,000 new would get the 100% discount in 2027–29.

See used EV on a novated lease for the wider comparison.

What does full FBT actually mean for your out-of-pocket costs?

As discussed in What is a novated lease, FBT is technically a tax payable by the employer — but employers almost universally pass this obligation on to the employee via the Employee Contribution Method (ECM), making it cost-neutral for the employer.

How ECM works in practice

Under a fully FBT-exempt novated lease, the entire fortnightly or monthly lease payment is funded from pre-tax income. The effective discount you receive is for any spending in this structure therefore equal to your marginal tax rate plus the 2% Medicare levy — i.e. 47% for top-bracket earners, 39% for the next bracket, and so on.

Under a lease with full FBT, the ECM rule requires that 20% of the car’s pre-on-road purchase price be converted from pre-tax to post-tax payment each year. This substantially reduces the proportion of the lease that can be funded pre-tax — and therefore materially reduces the tax benefit.

Example: For a car with an FBT base value of $75,500:

  • Under the FBT-exempt structure, let’s say $19,000 per year is paid pre-tax for a 5-year lease (which was my actual figure).
  • If this becomes a full-FBT structure, approximately $15,100 per year must instead be paid post-tax, with only around $4,000 remaining as a pre-tax deduction.4

The consequence is a dramatically lower saving, because much less of the lease payment is sheltered from income tax.

Quantifying the impact: full FBT vs FBT-exempt

Let cc = the car’s pre-on-road purchase price, and tt = your marginal tax rate plus the 2% Medicare levy (i.e. 0.32, 0.39, or 0.47 for the three upper brackets).

Under ECM, 0.2c0.2c of the lease payment must be converted from pre-tax to post-tax each year. The lost tax benefit on this component is 0.2c×t0.2c \times t.

In addition, there is a GST component payable on the same figure, equal to 1/11 of 0.2c0.2c — but this is paid pre-tax, so its net cost is 0.2c×111×(1−t)0.2c \times \frac{1}{11} \times (1 - t).

Total extra out-of-pocket cost per year (full FBT vs FBT-exempt):

0.2ct+c55−ct55=c(0.181818t+0.0181818)0.2ct + \frac{c}{55} - \frac{ct}{55} = c(0.181818t + 0.0181818)

As a percentage of the car’s pre-on-road cost, this equates to approximately:

  • 7.64% per year for the 30% + 2% Medicare levy bracket
  • 8.91% per year for the 37% + 2% bracket
  • 10.36% per year for the 45% + 2% bracket

For an $80,000 car, the additional annual out-of-pocket cost compared to an equivalent FBT-exempt lease would be:

Tax bracketExtra cost per year
30% + 2% Medicare levy$6,109
37% + 2% Medicare levy$7,127
45% + 2% Medicare levy$8,291

You may substitute your own car price cc and marginal rate tt into the formula above.

Quantifying the impact: 25% FBT discount vs FBT-exempt

The 25% discount cuts the statutory fraction from 0.2 to 0.15, so the same ECM logic applies scaled by 75%: 0.15c0.15c (rather than 0.2c0.2c) of the lease payment is redirected from pre-tax to post-tax.

Total extra out-of-pocket cost per year (25% FBT discount vs FBT-exempt):

0.15ct+3c220−3ct220=c(0.136364t+0.0136364)0.15ct + \frac{3c}{220} - \frac{3ct}{220} = c(0.136364t + 0.0136364)

For an $80,000 car, the additional annual out-of-pocket cost compared to an equivalent FBT-exempt lease would be:

Tax bracketExtra cost per year
30% + 2% Medicare levy$4,582
37% + 2% Medicare levy$5,346
45% + 2% Medicare levy$6,218

Again, substitute your own values of cc and tt for your specific situation.

Compare this with the full-FBT table above: the 25% discount saves about a quarter of the extra cost, not three quarters. For a top-bracket earner with an $80,000 car, full FBT costs $8,291 a year more than an exempt lease, and the 25% discount brings that down to $6,218.

The 25% tier and your reportable fringe benefits

Exposure draft — not yet law

Your reportable fringe benefits amount (RFBA) on your payment summary does not affect your income tax, but it is added to income for the HECS repayment rate, childcare subsidy, Division 293 tax and the Medicare levy surcharge (see FBT, RFBA and adjusted taxable income).

Under the draft (not yet law), the RFBA is worked out as if there were no discount: the statutory fraction of 0.2 is used, minus your post-tax contributions, and the result is grossed up by 1.8868 (new subsection 135P(3)). For an $80,000 car:

TierYour post-tax (ECM) contributionRFBA
Exempt, or 100% discount$0$16,000 × 1.8868 = $30,189
25% discount0.15 × $80,000 = $12,000($16,000 − $12,000) × 1.8868 = $7,547
Full FBT0.2 × $80,000 = $16,000$0

So a 25%-tier car leaves about 9.4% of its base value on your payment summary each year, much less than an exempt car but not zero. Like the ECM, it falls to two-thirds once the car has been held for four full FBT years. This assumes your provider sets the post-tax contribution at exactly 0.15 of the base value, which is what eliminates the employer’s FBT.

What this means in practice

The financial impact of moving from the exemption to full FBT or the 25% discount is significant — in the thousands of dollars per year for most mid-range EV novated leases. The more expensive the car and the higher your marginal tax rate, the larger the dollar impact.

For people already in a lease: if your car was at or below the LCT threshold when you committed to the lease before 1 April 2027, you are protected until that commitment ends. Draft Be aware of what counts as a new commitment, particularly changing jobs.

For people considering a new lease between April 2027 and March 2029, the calculus changes materially depending on vehicle price:

  • Cars at $75,000 or below remain a strong proposition through to their lease conclusion.
  • Cars between $75,001 and the LCT threshold pay 75% of the normal FBT from day one, which removes most (about three quarters) of the pre-tax benefit compared with an exempt car.
  • Cars above the LCT threshold continue to pay full FBT, as they did before.

For people planning a lease from April 2029 onward, the full EV FBT exemption will no longer be available. A 25% FBT discount (for cars within the LCT threshold) remains, but the headline benefit of EV novated leases will be substantially diminished compared to what has been available since 2022.

Key takeaways

  • The wind-back is phased and now in exposure draft legislation (September 2026); it is not yet law.
  • Draft Grandfathering depends on when you commit to the lease, not when the car arrives, and it ends if you refinance, change the lease terms or change jobs.
  • From 1 April 2029, no new EV novated lease gets the full discount, regardless of vehicle price.
  • For a top-bracket earner driving an $80,000 EV, full FBT instead of the exemption adds over $8,000 in out-of-pocket costs per year.
  • The 25% discount is a small buffer: it keeps only about a quarter of the exemption’s benefit. Draft It also keeps most of the car off your reportable fringe benefits.
  • Draft For new leases from April 2027, the draft drops the 1 July 2022 and LCT-history tests, which opens the discount to older and ex-LCT used EVs priced within the limits.
  • If you are in a qualifying lease committed before 1 April 2027 and nothing changes, no action is required.

Published 4 May 2026 from the treasurer’s announcement. Updated 10 October 2026 for the exposure draft legislation and explanatory materials released on 10 September 2026. This article will be updated again when the bill is introduced.

Footnotes

  1. Or the applicable LCT threshold at the time of purchase if the lease commenced in an earlier financial year. It is $91,661 from 1/7/26. ↩ ↩2

  2. Protected until the commitment ends. Draft A refinance, a change of term or residual, a job change and several other events count as a new commitment; see what ends your grandfathering. ↩ ↩2 ↩3 ↩4

  3. The upper limit is the fuel-efficient car LCT threshold for the financial year in which your novated lease starts: $91,661 for 2026–27, indexed each July after that. Draft The draft ties the ceiling to the fuel-efficient car limit specifically, so a separate $120,000 zero-emission LCT category, if it is legislated, would not obviously lift this ceiling. That is my reading of the draft rather than something it states. ↩ ↩2 ↩3 ↩4

  4. Within a full-FBT structure, there is an additional component where GST on the post-tax contribution must also be paid — though this GST component itself is funded pre-tax. This detail is explained in the second half of this article. ↩

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Workplaces with an exclusive salary packaging provider tend to have noticeably higher effective interest rates on novated leases — yet the commercial terms behind these exclusive arrangements are rarely disclosed to employees.

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To date, Dr Keane has personally spent around $15,700 pursuing this case, with further legal costs anticipated. I believe this matters to anyone in a workplace with an exclusive provider. If you agree, consider supporting his GoFundMe GoFundMe.