FBT Exemption for Electric Vehicles 2026 — Everything You Need to Know

19 March 2026|8 min read

Complete guide to the FBT exemption for electric vehicles in Australia 2026. Eligibility rules, the $91,387 luxury car limit, PHEV changes, employer requirements, and how much you save.

What is the FBT exemption for electric vehicles?

The Fringe Benefits Tax (FBT) exemption for electric vehicles is an Australian Government policy that eliminates FBT on eligible electric cars provided through employment arrangements such as novated leases. Fringe Benefits Tax is normally a 47% tax that employers must pay when they provide benefits to employees on top of their salary — and a car is one of the most common fringe benefits. For a $50,000 car, the FBT liability can be $7,000–$12,000 per year, which typically gets passed on to the employee through higher lease costs or post-tax contributions. The EV FBT exemption wipes this liability to zero. This was introduced under the Treasury Laws Amendment (Electric Car Discount) Act 2022, which took effect from 1 July 2022. The policy was designed to make electric vehicles more affordable and accelerate Australia's transition to cleaner transport. It has been spectacularly effective — EV novated lease orders increased by over 500% in the 12 months after the exemption was introduced. The exemption is worth $4,000–$15,000 per year depending on the car's value and the employee's salary, making it the single most valuable tax incentive for individual Australians since the First Home Owner Grant. As of March 2026, the exemption remains in full effect with no announced end date, though the government has signalled it will be reviewed in future budgets.

Which vehicles qualify for the FBT exemption?

To qualify for the FBT exemption, a vehicle must meet all of the following criteria. First, it must be a zero or low-emission vehicle. This includes battery electric vehicles (BEVs) like the Tesla Model 3, BYD Atto 3, and Hyundai Ioniq 5, as well as plug-in hybrid electric vehicles (PHEVs) like the BYD Shark 6, Mitsubishi Outlander PHEV, and BMW X1 xDrive25e. Standard hybrids (like the Toyota Camry Hybrid or RAV4 Hybrid) that cannot be plugged in do not qualify. Hydrogen fuel cell vehicles also qualify but are not currently available for private sale in Australia. Second, the car's value must be below the luxury car tax threshold for fuel-efficient vehicles, which is $91,387 for the 2025-26 financial year (indexed annually). This means vehicles like the Tesla Model S ($140,000+), BMW iX xDrive50 ($145,000+), and Mercedes EQS ($180,000+) do not qualify. Third, the vehicle must have been first held and used on or after 1 July 2022. This means a second-hand EV that was first registered before this date does not qualify, even if you buy it after that date. However, a second-hand EV first registered after 1 July 2022 does qualify — the exemption follows the car's first-use date, not when you acquire it.

The $91,387 luxury car tax limit explained

The luxury car tax (LCT) threshold for fuel-efficient vehicles is the price cap for the FBT exemption, and it is critical to understand how it works. For the 2025-26 financial year, this threshold is $91,387 (GST-inclusive). This means the car's value at the time of the novated lease agreement must be at or below this figure. The 'value' is generally the GST-inclusive driveaway price — the amount you would pay to drive the car out of the dealership. It includes the base price, dealer delivery, stamp duty, registration, CTP insurance, and any dealer-fitted accessories or options. Factory-fitted options included in the manufacturer's list price are part of the car's value. Accessories fitted after delivery (such as tinting, roof racks, or dash cameras) are generally not included in the car's value for this threshold — they are treated as separate items. If the car's value exceeds $91,387, the FBT exemption does not apply at all — there is no partial exemption. The entire benefit becomes subject to FBT at the standard 47% rate. This means a Tesla Model 3 Performance at $73,900 driveaway is fully exempt, but a Tesla Model S at $140,000 has zero exemption. The threshold is indexed annually, typically increasing by $1,000–$2,000 per year based on the motor vehicle purchase sub-group of the CPI. Check the ATO website for the current year's threshold.

PHEV rules: what changed and what still qualifies

Plug-in hybrid electric vehicles (PHEVs) have a more complex eligibility path than pure battery EVs. When the FBT exemption was first introduced in 2022, all PHEVs qualified alongside BEVs. However, the government tightened the rules effective 1 April 2025 to ensure the exemption was driving genuine emissions reduction. Under the current rules (applying from 1 April 2025), a PHEV qualifies for the FBT exemption only if it meets the following: the vehicle must have a minimum electric-only range as determined by WLTP testing (currently at least 80 km of pure electric range), and the arrangement must have been entered into on or after 1 April 2025 with a qualifying vehicle. PHEVs that were already under a novated lease agreement entered into before 1 April 2025 continue to receive the exemption for the duration of that existing lease — they are grandfathered. This change mostly affects smaller PHEVs with limited electric range. Models like the BYD Shark 6 (100 km electric range), Mitsubishi Outlander PHEV (84 km), and BMW X1 xDrive25e (82 km) still qualify. Models with shorter electric range that were popular under the original rules may no longer qualify for new leases. If you are considering a PHEV novated lease, verify the electric-only WLTP range with the manufacturer and confirm eligibility with your salary packaging provider before proceeding.

What employers need to know about the FBT exemption

If you are an employer (or you need to explain the FBT exemption to your employer), here is what matters. The FBT exemption means you as the employer have zero FBT liability for providing an eligible electric vehicle to an employee through a novated lease. You do not need to include the vehicle's fringe benefit value in your FBT return for the year. You do not need to calculate the reportable fringe benefit amount for the employee's payment summary. The employee still salary sacrifices through normal payroll — you deduct the agreed pre-tax and post-tax amounts each pay period and remit them to the salary packaging provider. The administration is identical to a standard novated lease. The only difference is the FBT calculation shows zero liability instead of a taxable amount. This means there is genuinely no cost to the employer — you are facilitating a salary sacrifice arrangement that costs nothing extra, reduces the employee's taxable income (which may slightly reduce your payroll tax liability depending on your state), and provides a highly valued employee benefit. Many employers have found that offering EV novated leases improves recruitment and retention, particularly for roles where salary increases are constrained. It is an employee benefit that costs the business nothing but is worth $4,000–$10,000 per year to the employee.

How much does the FBT exemption actually save you?

The FBT exemption saves you money in two ways: directly (by eliminating FBT that would otherwise apply) and indirectly (by making the novated lease structure more tax-efficient). The direct FBT saving depends on the car's value. FBT is calculated using the statutory formula: 20% of the car's base value multiplied by the number of days in the FBT year (365), divided by 365, then grossed up by a factor of 2.0802 and taxed at 47%. For a $50,000 car, the annual FBT is approximately $9,801. For a $70,000 car, it is approximately $13,722. For an $85,000 car, it is approximately $16,659. The FBT exemption eliminates this entirely. The indirect saving comes from how the exemption makes the novated lease work. Without the exemption, the Employee Contribution Method (ECM) requires you to make a post-tax contribution to offset the FBT — typically $3,000–$8,000 per year from after-tax income. With the exemption, this post-tax contribution is eliminated or drastically reduced, meaning more of your salary sacrifice is pre-tax, generating greater income tax savings. Combined, the total benefit of the FBT exemption for a $50,000 EV on an $80,000 salary is approximately $6,000–$8,000 per year — this is the amount you save compared to novated leasing an identical-value petrol car. Over a 5-year lease, that is $30,000–$40,000. Use our Tax Calculator to see your marginal rate and estimate your total saving.

Will the FBT exemption be extended or changed?

As of March 2026, the FBT exemption for electric vehicles has no legislated end date — it was introduced as an ongoing measure rather than a time-limited incentive. However, the government has indicated it will review the exemption's effectiveness and cost to revenue in future budgets. The exemption is estimated to cost the federal budget approximately $1.7 billion per year in foregone tax revenue (based on Treasury projections), and this figure is growing as EV adoption accelerates. There is political support for the exemption across both major parties, though some commentators have argued it disproportionately benefits higher-income earners (since the tax saving is greatest at higher marginal tax rates). Possible future changes could include: a cap on the car's value (e.g., lowering the threshold from $91,387 to $70,000 or $80,000), means-testing based on income, limiting the exemption to BEVs only (excluding PHEVs), or setting a sunset date (e.g., 2027 or 2028). If you are considering an EV novated lease, the current environment is highly favourable and locking in a 5-year lease now secures the FBT exemption for the full term regardless of future policy changes. Existing leases are expected to be grandfathered if any changes are made, as occurred with the PHEV rule change.

How to claim the FBT exemption: checklist for employees

You do not need to claim the FBT exemption yourself — it is applied automatically through the novated lease structure. However, here is a checklist to ensure everything is in order. Confirm the vehicle is eligible: check that it is a BEV or qualifying PHEV with at least 80 km electric range, priced below $91,387 driveaway, and first held and used on or after 1 July 2022. Confirm your employer offers novated leasing and has a salary packaging provider. Request a novated lease quote specifying the EV — the quote should show zero FBT liability. The quote should also show the pre-tax salary sacrifice amount, any post-tax component, and your estimated new take-home pay. Compare the quote to a standard car loan using our Take Home Pay Calculator to quantify the saving. Sign the lease agreement and novation deed. Keep records of the car's driveaway price and the date the lease commenced — you may need these if the ATO audits the arrangement. At tax time, your income statement from your employer will reflect the reduced taxable income. You do not need to declare the salary sacrifice separately. If you also claim work-related car expenses (e.g., logbook method for business use), note that you cannot double-dip — the running costs already included in the novated lease cannot be claimed again as a tax deduction.