Contact us or call us on 1300 946 527
The Federal Government has confirmed a phased adjustment to the Electric Car Discount (ECD). The changes were first announced on 5 May 2026 alongside the findings of the statutory review of the ECD, and have since been confirmed in the Federal Budget. The headline: the discount isn’t going away. It’s being recalibrated over the next three years, with most novated lease customers seeing no change at all in the near term.
This article walks through exactly what’s changing, when, and what it means whether you’re already in a novated lease on an EV, considering one, or running an employee benefits program for your workforce.
The short version
There are three phases to be aware of:
- Now until 31 March 2027 — no change. The current full FBT exemption continues for all eligible EVs under the luxury car tax threshold for fuel-efficient vehicles (currently $91,387, indexed each year).
- 1 April 2027 to 31 March 2029 — EVs under $75,000 keep the full exemption. EVs between $75,000 and the luxury car tax threshold move to a 25% discount on payable FBT.
- From 1 April 2029 — a permanent 25% FBT discount applies to all eligible EVs under the luxury car tax threshold for fuel-efficient vehicles.
Existing leases are grandfathered. If you’re already in a novated lease on an eligible EV, your current arrangement continues under the rules that applied when you set it up — for the life of that lease.
Why this matters less than the headlines suggest
The average vehicle on a novated lease in Australia sits well under $75,000. At Positive Salary Packaging, our current new EV purchase price average is around $62,000 — which means the vast majority of customers won’t feel the change at all until at least April 2029, and even then the benefit continues, just at a recalibrated level.
Industry data suggests fewer than 10% of EVs being sold fall in the $75,000–$91,387 bracket that’s affected during the transition period. For most people considering an EV under $75,000 through a novated lease, there’s no change at all between now and April 2029. What the change costs once it does apply — and who it affects when — is set out below.
What’s changing in detail
Phase 1: Until 31 March 2027
No change. The Electric Car Discount continues to apply in its current form. Eligible battery electric vehicles (BEVs) under the luxury car tax threshold receive a 100% FBT exemption when financed through a novated lease.
If you’re considering an EV novated lease right now, the existing rules apply for any arrangement entered into before 31 March 2027.
Phase 2: 1 April 2027 to 31 March 2029
Two tiers emerge:
- EVs under $75,000: the full 100% FBT exemption continues.
- EVs between $75,000 and the luxury car tax threshold ($91,387): a 25% FBT discount applies instead of a full exemption.
The exact mechanics of how the 25% discount will be implemented are still being finalised in the enabling legislation. A possible approach is for the statutory fraction used to calculate FBT to drop from 20% to around 15% of vehicle value for vehicles in this bracket.
Phase 3: From 1 April 2029
A permanent 25% FBT discount applies to all eligible EVs under the luxury car tax threshold for fuel-efficient vehicles. The government has indicated this is intended as a long-term, stable setting — not a transitional one.
What the change could mean in dollars
The table below is an indicative guide to the difference between the current full exemption and the 25% discount settings, modelled on the expected implementation (a 15% statutory formula method with the Employee Contribution Method, or ECM, applied). These settings apply to vehicles between $75,000 and the luxury car tax threshold from April 2027, and to all eligible EVs from April 2029.
| EV value | Salary | Approx. reduction in annual employee benefit |
|---|---|---|
| $50,000 | $120,000 | ~$2,900 a year |
| $50,000 | $170,000 | ~$3,340 a year |
| $80,000 | $120,000 | ~$4,600 a year |
| $80,000 | $170,000 | ~$5,300 a year |
Assumptions: 15,000 km a year, four-year term, 8% interest rate. These are indicative estimates only. The actual difference depends on the specific vehicle, your salary, running costs and individual tax position, so it’s worth running your own numbers before making a decision.
Two things worth drawing out:
- For vehicles under $75,000, this difference doesn’t apply until April 2029. You have a long runway under the full exemption before then.
- Even with the reduction, a novated lease on an EV remains tax-effective. The 25% discount, the GST savings on the purchase price and running costs, and the lower fuel costs of an EV all remain in place. The benefit is smaller than today’s full exemption, not absent, and one of the best ways to keep more of your income.
Why the government made this change
The Electric Car Discount was reviewed because the program has been considerably more expensive than originally forecast — by some estimates, around 15 times more expensive. That’s also another way of saying the program has been around 15 times more successful at driving EV uptake than was anticipated.
The review found that the ECD has been effective at encouraging EV uptake, with around 78,000 additional EV sales attributable to the discount over its first three years. It also found that the highest take-up of the discount is happening in suburban and outer-suburban areas — not the wealthy inner-city postcodes the political narrative had suggested.
The phased adjustment is the government’s response to the rising fiscal cost while preserving the incentive structure that’s been driving EV adoption. The graduated pathway is designed to avoid the sharp falls in EV sales that have occurred in other countries where incentives were withdrawn abruptly.
What this means for you
If you’re already in a novated lease on an EV
Nothing changes. Your existing arrangement is grandfathered under the rules that applied when you set it up. You continue to receive the benefits you signed up for, for the full term of your lease.
When your lease arrangement ends and/or you set up a new arrangement, the rules in effect at that time will apply. If you’re thinking about a residual release or restructuring your lease in the $75,000–$91,000 bracket, it’s worth a conversation before April 2027.
If you’re considering an EV novated lease
Until 31 March 2027, the current rules apply. That’s almost two years to make a decision under the full exemption settings.
If you’re looking at an EV under $75,000 — which covers most of the popular models on the market — you have no real time pressure beyond that. The full exemption continues for this price bracket until April 2029.
If you’re looking at something in the $75,000–$91,387 range, there’s a strong case for moving before April 2027 to lock in the full exemption for the life of your lease. Once the 25% discount applies, the reduction in benefit is meaningful — in the order of a few thousand dollars a year depending on the vehicle and your salary (see the guide above). Locking in before the transition grandfathers the current settings for your full lease term.
If you’re an employer
For organisations offering novated leasing as part of an employee benefits program, the practical impact is minimal in the short term. The benefit your employees value is intact, the eligibility rules are unchanged, and the administration of EV novated leases continues as it currently does.
Your employees may have questions when they see the news. The simplest message is: nothing changes for at least 12 months, and even after that the discount continues — just at a recalibrated level for higher-value vehicles. We’ve put together a summary you can share with your team, and we’re happy to run a session for your workforce if helpful.
Why a novated lease on an EV still makes sense
Even with the phased adjustment, a novated lease remains one of the most tax-efficient ways to finance an electric vehicle in Australia. The maths still works for a few reasons.
The full exemption is in place until at least 2027. For anyone entering a lease in the near term, the existing settings apply. That’s a four to five-year lease typically running well into the late 2020s under the current rules.
The 25% discount is still a real benefit. From 2029, eligible EVs move from full exemption to a 25% discount on a reduced FBT base (the expected 15% statutory formula method), with the Employee Contribution Method applied. That’s a smaller benefit than today’s full exemption, but it sits well ahead of a fully taxed arrangement — and it stacks with the GST savings on the purchase price, the GST savings on running costs, and the pre-tax salary structure that makes novated leasing tax-effective in the first place.
Running cost savings stack up regardless of FBT settings. An EV is significantly cheaper to fuel than a petrol or diesel vehicle. Treasury’s analysis estimates the average BEV saves around $26,500 in fuel costs over its life compared to a comparable internal combustion vehicle. Those savings exist independently of the FBT treatment.
Energy security and fuel price exposure. Australia imports 80–90% of its refined fuel. With ongoing geopolitical volatility affecting global oil prices, the case for shifting to electric — and locking in a portion of your transport costs at the price of electricity rather than petrol — is stronger now than it was when the ECD was first introduced.
How a novated lease on an EV actually works
A novated lease is a three-way arrangement between you, your employer, and a salary packaging provider. Your employer makes lease payments and covers running costs on your behalf, and those payments come out of your salary — partly from pre-tax income and partly from post-tax income (for vehicles not exempt of FBT).
This is worth being clear about, because there’s a common misconception that “everything comes out of pre-tax salary” with a novated lease. It doesn’t, and providers who claim otherwise are misleading you.
Here’s how it actually works under the current Electric Car Discount settings:
- For eligible EVs under the luxury car tax threshold, the current FBT exemption means all of your lease payments can come from pre-tax salary, because there’s no FBT liability for your employer to offset.
- For non-exempt vehicles (and, from 2027, for EVs in the $75,000–~$91,000 bracket), the Employee Contribution Method (ECM) typically applies. Under ECM, a portion of your lease payments comes from post-tax salary to offset the FBT liability the employer would otherwise incur.
The mix of pre-tax and post-tax contributions is what makes the overall arrangement tax-effective. We maximise the pre-tax portion where possible, but it’s important to understand that the after-2027 rules for vehicles in the higher bracket will involve a larger post-tax contribution component than under the current full exemption.
A good salary packaging provider will model this transparently for you up front, including running costs, fuel and charging estimates, insurance, registration, servicing, and tyres. The point of a novated lease is to consolidate all of those costs into a single salary deduction with the tax structure optimised — not to make grand claims about everything being pre-tax.
Frequently asked questions
No. The discount continues. Until 31 March 2027 there’s no change at all. After that, vehicles under $75,000 keep the full exemption, and vehicles up to the luxury car tax threshold receive a 25% FBT discount. From April 2029 a permanent 25% discount applies to all eligible EVs under the threshold.
No. Existing arrangements are grandfathered under the rules that applied when you set them up. Your current benefit continues for the life of your lease.
When your current lease ends and you set up a new arrangement, the rules in effect at that point apply. If you’re planning a residual release or refinance on a vehicle over $75,000, it’s worth talking through the timing before April 2027.
Yes. The same eligibility rules continue to apply to second-hand vehicles. Provided the vehicle was first used after 1 July 2022 and meets the price threshold criteria, it remains eligible.
Vehicles above the luxury car tax threshold for fuel-efficient vehicles ($91,387 in 2025-26, indexed annually) aren’t eligible for the ECD under any phase. That hasn’t changed under the new settings.
PHEVs ceased to be eligible for the ECD for new arrangements entered into from 1 April 2025. That hasn’t changed under the new settings.
The eligibility rules — vehicle type, price threshold, first-use date — are unchanged. If you’re considering a specific model, the easiest way to check is to ask us for a quote, which will confirm eligibility based on current rules.
If you’re looking at an EV in the $75,000–$91,387 bracket, there’s a clear case for moving before April 2027. Locking in now keeps the full exemption for the life of your lease and avoids the 25% discount settings, which reduce the benefit by a few thousand dollars a year (see the guide above). For vehicles under $75,000, there’s no urgency — the full exemption continues until at least April 2029.
The phased changes were announced on 5 May 2026 alongside the final report of the Statutory Review of the Electric Car Discount, and have since been confirmed in the Federal Budget. The enabling legislation is still progressing through Parliament, so a small number of specific questions — particularly around grandfathering treatment for residual releases on vehicles in the $75,000–$91,387 bracket — are yet to be settled in the detail. We’ll update this article as that detail becomes available.
Talk to us
If you’re considering an EV novated lease, or you’re already in one and want to understand what the changes mean for your specific situation, we’re happy to walk through the numbers with you. Our calculator can show you the all-in cost comparison for a specific vehicle, and our consultants can explain how the timing decisions interact with your tax position.
