For four years, a full fringe benefits tax exemption has made novated leasing one of the cheapest ways for an employee to get into an electric car. That window is now set to start closing. The federal government has announced a phased wind back of the electric car FBT exemption, beginning 1 April 2027. The change has been flagged rather than fully legislated, so the detail could shift, but the direction is clear and it matters for anyone weighing an EV over the next couple of years.
Here is what has been announced, what stays the same for now, and how it feeds into the decision to lease or borrow.
What the exemption does today
Since 2022, an eligible battery electric car provided through a novated lease and priced below the luxury car tax threshold for fuel efficient vehicles has been exempt from fringe benefits tax. In plain terms, the slice of salary packaged to run the car is taken from your pre tax income without the usual FBT bill attached. That is what makes an EV novated lease so much cheaper than doing the same thing with a petrol car, where FBT still applies. Our novated leases explained guide walks through the mechanics.
What is changing, and when
The announced phase down runs in stages:
- Until 31 March 2027, nothing changes. Eligible EVs below the luxury car tax threshold keep the full exemption.
- From 1 April 2027 to 31 March 2029, the full exemption is kept only for eligible EVs costing 75,000 dollars or less. Eligible EVs priced above 75,000 dollars but still below the luxury car tax threshold move to a 25 per cent FBT discount rather than a full exemption.
- From 1 April 2029, the full exemption ends for all EVs. Eligible cars below the luxury car tax threshold receive the 25 per cent discount only.
The luxury car tax threshold for fuel efficient vehicles is set each year by the Australian Taxation Office, so the exact upper cap moves over time. Plug in hybrids already sit outside the exemption, so the change is really about battery electric cars.
Existing leases are protected
One important detail: arrangements entered into before the changes take effect are grandfathered. If you sign an eligible novated lease while the current rules apply, the announced changes are not designed to claw back the treatment for the remaining term of that lease. That is a significant point for anyone deciding whether to act before the first cut off in 2027.
Why this matters for the lease versus loan decision
The FBT exemption is the single biggest reason a novated lease often beats a straight car loan for a salaried EV buyer. As the exemption narrows, the maths shifts:
- For a sub 75,000 dollar EV, the case for leasing over the next few years is largely unchanged, because the full exemption continues to 2029 for that price bracket.
- For a dearer EV above 75,000 dollars, the advantage shrinks from 2027, because only a 25 per cent discount applies. A conventional car loan may become more competitive once the tax saving is smaller.
- After 2029, every EV lease loses the full exemption, which brings novated leasing and car loans closer together across the board.
None of this makes a lease automatically better or worse. It depends on your marginal tax rate, the price of the car, your employer's setup and how long you keep it. A repayment calculator is a useful starting point for comparing the loan side against a quoted lease.
What to do with this
- If you are eyeing a more expensive EV and rely on the full exemption, the window for the richest treatment runs to 31 March 2027. Model the numbers both ways before that date.
- If your EV sits under 75,000 dollars, there is less urgency, since the full exemption for that bracket continues to 2029.
- Either way, get a novated lease quote and a car loan quote and compare the after tax cost, not just the sticker rate. Our car loan rates page and the list of lenders help with the finance side.
- Treat the announced dates as a plan, not settled law. The policy has been flagged and still needs to pass through the usual legislative process, so confirm the current rules before committing.
The takeaway
The EV novated lease tax break is not disappearing overnight, but it is on a clear path to shrinking from 1 April 2027 and again from 1 April 2029. Cheaper EVs keep the best treatment the longest, dearer ones lose ground first, and anything signed under the current rules is protected for its term. For borrowers, the practical move is to compare a lease and a loan on after tax cost with these dates in mind.
This article is general information only, not tax or financial advice. Confirm the current rules with the ATO or a registered tax agent before you act.
