You may have heard that the FBT exemption for electric cars "ends on 1 April 2027". That is not quite right, and it matters if you are about to sign a novated lease or change jobs.
Here is the short version:
- It is not law yet. The change was announced on 5 May 2026 and is in the 2026ā27 Budget. Treasury released draft legislation for consultation, which closed on 28 September 2026. As at 9 October 2026 no bill has been introduced to Parliament, and the ATO says plainly: "This measure is not yet law."
- It phases down rather than switching off. EVs costing $75,000 or less keep the full exemption for anything committed to before 1 April 2029. Only EVs over $75,000 lose ground from 1 April 2027, and even they keep a 25% discount.
- Leases already in place are protected. The protection follows your commitment, and changing employer counts as a new commitment.
The proposed timeline
Under the draft, the full exemption becomes a discount on the FBT statutory formula. The normal 20% rate drops to 0% for a 100% discount, or 15% for a 25% discount.
| Car's base value | Committed to before 1 April 2027 | Committed to 1 April 2027 ā 31 March 2029 | Committed to from 1 April 2029 |
|---|---|---|---|
| $75,000 or less | Fully exempt | 100% discount (no FBT) | 25% discount |
| Over $75,000, up to the LCT fuel-efficient cap | Fully exempt | 25% discount | 25% discount |
| Over the LCT fuel-efficient cap | Not eligible | Not eligible | Not eligible |
The luxury car tax fuel-efficient cap is $91,387 for 2025ā26 and $91,661 for 2026ā27.
A few details sit behind that table:
- The $75,000 test uses the car's base value, measured when your employer (or its financier) first holds it. That is broadly the cost price including GST, not counting registration or stamp duty. It is not the drive-away price on the ad.
- $75,000 is a fixed number in the draft. It is not indexed.
- The car must be a battery electric or hydrogen fuel-cell car. Plug-in hybrids already lost the exemption on 1 April 2025, apart from leases that were already running.
- The 25% discount only works under the statutory formula. If your employer uses the operating cost (logbook) method, the draft gives no discount.
Your lease is protected by its commitment date
The draft does not look at when the car was delivered or when the lease started. It looks at the last time you or your employer committed to providing the car.
A commitment means the point where the deal is financially binding and nobody can back out. While that commitment lasts, the old rules keep applying.
The draft explanatory materials list things that create a new commitment. A new commitment loses the old treatment and picks up whatever rules apply on that date:
- refinancing the lease
- changing the lease term or the residual (balloon)
- adding accessories that increase the lease payments
- changing employers, even within the same corporate group
- moving to another government department
Ending a lease and re-signing early just to lock in the old rules "may be caught by the general anti-avoidance provisions". Do not try it.
What happens when you change jobs
A novated lease is a three-way deal between you, your employer and the financier. When you leave, your employer drops out. The draft says the commitment "will cease when an employee leaves their employment". If a new employer takes the lease over, that is a new commitment under the rules in force at that time.
You change jobs before 1 April 2027
Your new employer's commitment is made while today's rules still apply. Today's test only needs:
- an eligible EV, first held and used on or after 1 July 2022;
- a current employee;
- luxury car tax never payable on the car.
So on our reading the car stays fully exempt with the new employer, and that new commitment is then protected. The draft does not say this in so many words, so check with your lease provider.
You change jobs on or after 1 April 2027
The new novation is a new commitment, so the phased rules apply:
- Base value $75,000 or less: still a 100% discount, as long as the new commitment is before 1 April 2029.
- Base value over $75,000: drops to the 25% discount. You now have a taxable FBT amount to deal with (see the example below).
- Any EV re-novated from 1 April 2029: 25% discount.
You are made redundant
It makes no difference whether you leave voluntarily. When the plug-in hybrid exemption ended in 2025, the ATO's own example covered this. A worker was made redundant and a new employer re-novated the same car. The new employer was not entitled to the exemption, "even if [she] left her original employment voluntarily". Expect the EV rules to work the same way.
There is a gap between jobs, or you take unpaid leave
If the novation stops during the gap, restarting it is a new commitment. Under the plug-in hybrid rules, one way to keep it was to prepay the lease to your employer so the novation never stopped. Ask your employer and lease provider before you go.
Your new employer won't novate
Some employers don't offer salary packaging. If yours won't take the lease on:
- the novation ends and the lease reverts to you;
- you keep paying it from after-tax pay, with no FBT but no tax saving either;
- running costs are usually unbundled, so you pay them yourself;
- you can pay the lease out or buy the car at the residual.
Ask before you resign. It is the one question that decides whether you keep the saving.
You move teams or branches with the same employer
If you stay with the same employer for FBT purposes and the novation never breaks, nothing changes. The ATO accepted this under the plug-in hybrid rules.
You go part-time
We found no ATO or Treasury guidance. On our reading, fewer hours alone does not change the lease commitment. Restructuring the payments, term or residual to suit the new pay would.
Refinancing, extending and the end of the lease
- Extending or refinancing the residual is a new commitment. An option to extend in your contract is not a binding commitment, so using it counts as new.
- Re-leasing the same car when the lease ends is a new commitment.
- Paying out the residual and keeping the car ends the fringe benefit. Once your employer no longer provides the car, there is no FBT question.
Three things that do not change
1. The car still shows on your income statement
An exempt EV is still a reportable fringe benefit. Your income statement shows its notional taxable value grossed up by 1.8868. You pay no income tax on it, and it does not change your standard Medicare levy. It is added back for:
- the Medicare Levy Surcharge and the private health insurance rebate
- HELP and other study loan repayments
- Division 293 tax
- Family Tax Benefit, Child Care Subsidy and child support
The draft keeps the reportable amount at the full 20% rate after 2027, even for discounted cars.
2. The home charger is not exempt
The ATO says "a home charging station is not a car expense". Paid by your employer, it is a separate taxable fringe benefit. If it is rolled into the lease, its cost has to be shown separately.
3. Home charging has a set rate
Since 1 April 2026 the ATO's shortcut rate for home charging is 5.47 cents per kilometre (it was 4.20c). Multiply it by the kilometres you charged at home. For example, 7,500 km Ć 5.47c = $410.25 for the year.
If you pay for home charging yourself, that amount counts as your own contribution. It lowers the taxable value used for your reportable amount. After 2027 it would also lower the FBT on a discounted car.
A worked example
Illustrative only. Your figures will differ.
Sam earns $100,000 in 2026ā27 and leases a $55,000 battery EV. That is under $75,000 and under the LCT cap. The lease and running costs come to $13,000 a year before GST, or $14,300 with GST. The employer claims the GST back.
| Scenario | Taxable income | Tax + Medicare | Cash left after car costs | Better off by |
|---|---|---|---|---|
| No lease: pay $14,300 from after-tax pay | $100,000 | $22,520 | $63,180 | ā |
| EV, fully pre-tax, no FBT | $87,000 | $18,360 | $68,640 | $5,460 a year |
| Same car, petrol, using post-tax ECM to zero FBT | $97,000 | $21,560 | $64,440 | $1,260 a year |
Now the catches:
- Reportable amount: 20% Ć $55,000 Ć 1.8868 = $20,755. For the surcharge and HELP, Sam's income is about $107,755, not $87,000.
- Private hospital cover: without it, $107,755 is over the 2026ā27 singles threshold of $105,000. Sam would pay a 1% Medicare Levy Surcharge, about $1,078.
- HELP debt: with one, Sam's compulsory repayment rises from about $4,571 to $5,734. It still comes off the debt, but it is about $1,160 less cash each year.
If the car cost $85,000 and was committed to after 1 April 2027:
- The 25% discount leaves an FBT taxable value of 15% Ć $85,000 = $12,750 a year.
- Sam can pay that amount from after-tax pay as an employee contribution (ECM) so no FBT is due.
- That moves $12,750 from pre-tax to after-tax pay. On the 30% bracket it cuts the yearly benefit by roughly $4,900 compared with the full exemption.
What to do now
- Buying an EV over $75,000? To keep the full exemption, the binding commitment needs to be made before 1 April 2027. Aim to have the car delivered before then too (see "still unclear" below).
- Buying one at $75,000 or less? Under the proposal you have until 31 March 2029.
- Thinking of changing jobs? Before you resign, ask the new employer whether they will take over the novation. After 1 April 2027, a job change resets your car to the rules on that date.
- Don't touch the lease without checking. Refinancing, extending, changing the residual or adding financed accessories all count as a new commitment.
- Check the side effects. Model the reportable amount against the Medicare Levy Surcharge and HELP. Our pay calculator includes the novated lease, and the novated lease calculator compares the full cost.
Still unclear
- The bill is not in Parliament yet. The final wording may differ from the draft.
- Delivery after 1 April 2027 on a deal signed before it. The draft looks commitment-based. The plug-in hybrid rule also required the car to be used before the cut-off. No one has confirmed which way the EV rule goes, or exactly when a novation becomes binding before delivery.
- Mid-year changes. The draft notes and the explanatory materials disagree on whether a new commitment switches rates on the day or from the next FBT year.
- ATO pages lag. The ATO's EV exemption page still says a review is due "by mid-2027". It predates the May 2026 announcement.
Sources
- Treasurer and Minister for Climate Change, Fairer tax treatment to encourage affordable EVs, 5 May 2026
- Budget 2026ā27, Budget Paper No. 2: "Electric Car Discount ā more sustainable fringe benefits tax treatment of electric cars"
- Treasury, consultation on the exposure draft, September 2026
- ATO, Electric car discount ā more sustainable FBT treatment of electric cars
- ATO, Electric cars exemption
- ATO, FBT on plug-in hybrid electric vehicles
- ATO, PCG 2024/2 ā electric vehicle home charging rate
- ATO, Luxury car tax rate and thresholds
- ATO, Consequences of having a reportable fringe benefits amount
This article is general information only, not personal financial or tax advice. The EV changes described are proposed and may change before they become law. Speak to a registered tax agent or accountant about your situation before signing or changing a novated lease.
