The electric vehicle FBT exemption allows eligible Australian employers to provide certain zero- or low-emission vehicles to employees without incurring fringe benefits tax, potentially saving thousands of dollars per year. In 2026, the exemption still applies to battery electric, hydrogen fuel cell, and plug-in hybrid vehicles (PHEVs) that meet specific price and eligibility thresholds – though PHEVs face a tightening timeline.
What is the EV FBT exemption and who does it apply to?
Introduced under the *Treasury Laws Amendment (Electric Car Discount) Act 2022*, the FBT exemption for electric vehicles has become one of the most talked-about tax strategies for salary packaging in Australia. In 2026, it remains a live and powerful tool – but it pays to understand exactly how it works before assuming your vehicle qualifies.
Under the exemption, employers are not required to pay fringe benefits tax on cars that are:
- Battery electric vehicles (BEVs) - Hydrogen fuel cell electric vehicles (FCEVs) - Plug-in hybrid electric vehicles (PHEVs) – subject to special transitional rules (more on this below)
The exemption applies when the vehicle is provided under a novated lease or a company car arrangement, and the car's value does not exceed the luxury car tax (LCT) threshold for fuel-efficient vehicles. The LCT threshold is indexed annually – check the current threshold on the ATO LCT rate and thresholds page before relying on it.
Importantly, the exemption only applies to *cars* as defined under FBT law – that is, vehicles designed to carry fewer than nine passengers, excluding motorcycles and most utes (unless they are passenger cars by design).
How does the exemption actually save you money?
To understand the savings, it helps to understand what FBT normally costs. Fringe benefits tax is levied on employers at the top marginal income tax rate (47% including Medicare Levy) applied to the "taxable value" of the benefit provided. For a car, the taxable value is typically calculated using the statutory formula method – see ATO statutory formula method.
Without the exemption, a $60,000 electric vehicle could generate an annual FBT liability of around $5,640 – a significant cost that employers historically passed back to employees via reduced salary packaging benefits.
With the exemption in place, that FBT liability drops to zero. The employee can salary sacrifice the full cost of the lease (including registration, insurance, and running costs in many cases), reducing their taxable income and increasing their take-home pay.
Novated lease arrangements under the EV exemption can deliver meaningful take-home savings for higher-rate taxpayers, varying with vehicle price and lease structure – model your individual position with a registered tax agent before signing. A cost guide can help you understand what professional advice on structuring these arrangements typically runs.
The PHEV situation: what changed and what still applies
This is where many Australians get caught out. Plug-in hybrid electric vehicles were always intended to have a transitional period under the exemption – and that transition is now playing out.
From 1 April 2025, PHEVs are no longer eligible for the FBT exemption *unless* a qualifying arrangement was already in place before that date. If your employer entered into a valid novated lease or car benefit arrangement for a PHEV before 1 April 2025, you can continue using the exemption until that arrangement naturally ends – whether through lease expiry, refinancing, or termination.
This means:
- New PHEV arrangements entered into from 1 April 2025 onwards do not qualify for the exemption - Existing PHEV arrangements that pre-date 1 April 2025 remain exempt for their duration - BEVs and FCEVs are not affected by this change – they remain fully exempt with no sunset clause announced as of 2026
If you're unsure whether your current PHEV arrangement qualifies, speaking to one of the best accountants in Sydney or in your local area is the safest move.
Which vehicles qualify in 2026? A comparison
The market has expanded considerably since the exemption launched. Below is a comparison of three popular vehicles commonly used in novated lease arrangements under the EV FBT exemption in 2026:
| Vehicle | Type | Drive-Away Price (AUD, 2026 est.) | FBT Exempt? | Notes | |---|---|---|---|---| | Tesla Model 3 (RWD) | BEV | ~$59,900 | ✅ Yes | Under LCT threshold; most popular EV lease in AU | | BYD Atto 3 (Standard) | BEV | ~$47,990 | ✅ Yes | Strong uptake among fleet buyers in 2026 | | Mitsubishi Outlander PHEV | PHEV | ~$56,490 | ⚠️ Transitional only | Only exempt if arrangement pre-dates 1 April 2025 |*Prices are indicative estimates based on manufacturer and fleet pricing as at early 2026. Always verify current figures with your dealer and novated lease provider.*
Note that the luxury car tax threshold is the binding upper limit. Any vehicle – even a BEV – with a value exceeding the fuel-efficient LCT threshold (see ATO LCT thresholds) will not qualify for the exemption. This catches vehicles like higher-spec Tesla Model S and Model X variants.
Reportable fringe benefits and the Medicare levy surcharge trap
Even when an employer is exempt from paying FBT, the value of the exempt vehicle benefit must still be reported on the employee's payment summary (income statement) as a reportable fringe benefits amount (RFBA). In 2026, this reporting obligation continues.
Why does this matter? The RFBA is included in various income tests used by the government, including those for:
- The Medicare Levy Surcharge - HECS-HELP repayment thresholds - Child support assessments - Family Tax Benefit eligibility
So while the employee avoids income tax on the salary sacrificed amount, their RFBA can push them over income test thresholds – potentially triggering unexpected obligations. The Medicare Levy Surcharge income thresholds are published by the ATO – check whether the addition of an RFBA pushes you across any threshold before signing a salary sacrifice arrangement.
This is one of the most commonly misunderstood aspects of the exemption, and one of the strongest reasons to consult a qualified tax accountant before entering any arrangement. See our methodology for how we evaluate and rank accounting professionals.
How employers administer the exemption
For business owners and HR teams, administering the EV FBT exemption involves several compliance steps:
1. Confirm vehicle eligibility – Check the car's first retail sale date (it must be on or after 1 July 2022 for BEVs), vehicle type, and cost against the LCT threshold 2. Set up a valid salary sacrifice agreement – The arrangement must be in writing, agreed before the income is earned, and revised for any salary changes 3. Keep logbooks or odometer records – Even exempt benefits require substantiation in case of an ATO audit 4. Report correctly on payment summaries – The exempt amount must appear as an RFBA at year-end 5. Reconcile the FBT return – The employer still lodges an FBT return showing the exempt benefit; no tax is payable, but the record must exist
The ATO has indicated ongoing compliance focus on novated lease arrangements, particularly where employees are salary sacrificing without genuine arm's-length employer involvement.
Getting professional advice: what to ask your accountant
The EV FBT exemption intersects tax law, employment conditions, vehicle finance, and personal income – which is why a good accountant is worth their fee many times over when structuring these arrangements.
When meeting with an adviser, ask:
- Does my specific vehicle model and variant qualify? (Trim levels matter – spec upgrades can push a car over the LCT threshold) - How will the RFBA affect my income-tested obligations? - Is a novated lease or employer-owned vehicle better for my situation? - What happens to the exemption if I change jobs mid-lease?
For middle to higher income employees, the EV FBT exemption combined with salary packaging can be one of the more powerful legal tax strategies available in Australia right now. Novated lease uptake of EVs has grown materially since the exemption was introduced – see the latest ATO Taxation Statistics for current data.
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Frequently asked questions
Q: Can I claim the EV FBT exemption if I'm self-employed? A: Not directly. The exemption applies to employer-provided benefits. If you operate through a company or trust and employ yourself, your entity can provide the vehicle as an employer – but you'll need a genuine employment arrangement in place. Sole traders cannot access the exemption for their own use. Q: What if my electric vehicle costs more than the LCT threshold? A: The exemption does not apply to vehicles priced above the fuel-efficient LCT threshold – check the current threshold on the ATO LCT thresholds page. If your BEV exceeds the threshold, the full value is subject to standard FBT rules. Q: Do running costs like charging and registration count as exempt too? A: Yes, associated costs such as registration, insurance, tyres, and charging costs can be included in a novated lease and treated as part of the exempt benefit, provided they're structured correctly within the lease agreement. Q: Will the EV FBT exemption be removed in future years? A: As of 2026, the Australian Government has not announced an end date for BEV and FCEV exemptions. However, the PHEV transitional rules show that policy can change with notice. Keeping in contact with a qualified tax accountant ensures you're updated if legislation shifts.---
Sources
- ATO – Electric cars exemption: ato.gov.au – electric cars exemption - ATO – Luxury car tax thresholds: ato.gov.au – LCT rate and thresholds - ATO – Car fringe benefits, statutory formula method: ato.gov.au – statutory formula - ATO – Reportable fringe benefits: ato.gov.au – reportable fringe benefits - ATO – Medicare Levy Surcharge thresholds: ato.gov.au – MLS thresholds - Treasury Laws Amendment (Electric Car Discount) Act 2022: legislation.gov.au – Electric Car Discount Act 2022
Information in this article is general and current as at 19 May 2026. Verify with a TPB-registered tax agent or the linked ATO sources before relying on it.
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