Electric Vehicle (EV) Tax Benefits
The Government currently provides generous tax incentives to encourage Australians to move to electric vehicles through novated leases. But first, some groundwork to ensure you understand all the concepts fully:
What is a Novated Lease?
A novated lease is a three-way salary packaging arrangement between you, your employer, and a financing company to pay for a car and its running costs (petrol, insurance, servicing) directly from your salary. It uses pre-tax salary deductions to lower your taxable income and saves GST on the purchase price and operating costs.
Importantly, you do not need to use the car for work purposes to access a novated lease. The tax benefit comes from salary packaging, not work use.
That sounds great and very tax efficient – why don’t we all just salary package our cars?
Fringe Benefit Tax (FBT)
This is a tax employers pay when they provide employees with certain benefits instead of salary. A car, packaged through salary but not used for work, is one of the most common benefits that attracts FBT as the government wants to ensure it does not become a tax loophole.
In practice, FBT is passed onto you at the rate of 47% and is rarely absorbed by the employer. There are various ways FBT is calculated and managed, and one of these is purchasing a qualifying EV as there is currently no FBT charge on these types of vehicles. Even if you don’t pay any FBT, the “reportable fringe benefit” amount may still appear on your payment summary, and may affect other benefits such as HELP repayments, Family Tax Benefits and Division 293 Tax.
Now that we’ve set the foundation, let’s talk about the proposed changes announced early in May, which will remove some of the existing tax benefits over three stages.
Current Position (Stage one: Now – 31 March 2027)
Highest tax benefits available:
If you purchase an eligible EV through a novated lease:
No Fringe Benefits Tax (FBT) applies (a major saving)
Lease repayments and many running costs can be paid from pre-tax salary
Potential GST savings on the purchase price and running costs
Particularly attractive for higher income earners
For those on higher tax rates, this can create meaningful savings compared to buying personally with after-tax money.
Stage two: From 1 April 2027 (until 31 March 2029)
Higher-priced EVs may become less attractive
Proposals suggest:
EVs under $75,000 → continue receiving the full tax exemption
EVs $75,000+ but under the Luxury Car Tax (LCT) threshold → reduced tax concessions with a 25% FBT discount (much less favourable than today).
The current 2026FY LCT threshold is $91,387 for fuel-efficient cars* like some EVs – anything above the LCT a tax of 33% applies to the GST inclusive price, in addition to losing the full FBT discount.
Stage three: From 1 April 2029 (long-term)
Reduced benefits become the norm, with full tax exemption removed
The current full exemption is proposed to move to a partial concession only, reducing the overall tax advantage.
All EVs under the Luxury Car Threshold (LCT) → only a 25% FBT discount
What this means for you
If you're considering an EV in the next few years, timing may matter. The current rules remain highly attractive — especially for higher income earners — but future changes may reduce some of the benefits.
However, these changes still need to go through the Federal Budget process and legislation through Parliament before becoming law.
*From 1 July 2025, a fuel-efficient car is defined as one that has a fuel consumption not exceeding 3.5 litres per 100 kilometres (this was halved from 7 litres, so a significant shift). The threshold for all other cars is $80,567, so much lower. A third category for zero-emission vehicles have been suggested but is not yet in operation.
Read more about the Luxury Car Tax, including tips for getting around it, in NRMA shares their tips and Money has some great information too.
General Advice Warning
The information in this document and any shared links has been prepared for general information purposes only and does not consider your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned in this email, consult a professional financial adviser to consider whether it is suitable and appropriate for you and your personal needs and circumstances. Before deciding to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product, together with the Target Market Determination (TMD).
Antoinette Mullins
GradDipFinPlan| CFP® | B.Diac | ADFS (FP) Certified Financial Planner® & Director
Antoinette Mullins is an Authorised Representative (No. 316376) of Spark Advisors Australia Pty Ltd
ABN 34 122 486 935 AFSL 380552
Tanya Oddo
BA-BCom | DFP, Financial Planner & Director
Tanya Oddo is an Authorised Representative (No. 284500) of Spark Advisors Australia Pty Ltd
ABN 34 122 486 935 AFSL 380552