A tax saving can make a new car look pretty appealing. Lower running costs can help too. Put the two together, and an electric car through your business or a novated lease might seem like an easy decision. 

But before you get too excited about the tax savings, you need to know what the car will actually cost you. Especially when the rules are changing. 

Treasury has released draft legislation to wind back the fringe benefits tax [FBT] exemption for eligible electric cars from 1 April 2027. Over time, the full exemption would be replaced by a smaller concession for new commitments. 

For some arrangements, that could mean thousands of dollars a year in FBT where there is currently none. 

The changes aren’t law yet. But if you’re considering an EV, or your lease is coming up for renewal, it’s worth understanding what’s proposed before you commit.  

 

what’s changing? 

 

At the moment, an eligible electric car provided to an employee for private use can be exempt from FBT. This includes cars provided through a novated lease. 

There are conditions, of course. The car must first have been held and used on or after 1 July 2022, and luxury car tax must never have been payable on its sale or importation. Simply buying an EV privately doesn’t give you access to the exemption.  

The proposed changes would reduce that benefit in stages, depending on when the commitment is made and the car’s value. 

when the commitment is made  eligible cars valued at $75,000 or less  eligible cars above $75,000 and within the applicable limit 
Before 1 April 2027  Current full exemption continues while the qualifying commitment remains in place  Current full exemption continues while the qualifying commitment remains in place 
1 April 2027 to 31 March 2029  100% FBT discount under the statutory formula method  25% FBT discount under the statutory formula method 
From 1 April 2029  25% FBT discount under the statutory formula method  25% FBT discount under the statutory formula method 

 

Cars above the applicable fuel-efficient car limit wouldn’t qualify for the new concession. That limit is $91,661 for 2026–27 and can change in future years.  

The new price tests use the car’s FBT base value. Have your accountant check that value before you commit. The advertised price won’t necessarily tell you whether the car qualifies. 

And if you’re looking at a plug-in hybrid, the rules are already different. These generally stopped qualifying for the exemption from 1 April 2025, apart from certain protected arrangements.  

 

what could it cost you? 

 

A 25% discount might sound reasonable. But compared with paying no FBT on the car benefit, it leaves a sizeable bill. 

Take an eligible EV with an FBT base value of $80,000 under a new commitment made from 1 April 2027. 

Under the proposed statutory formula rules, annual FBT on the car benefit could be around $11,700, compared with nil under the current exemption. Without the EV concession, the same base value would produce FBT of around $15,600. 

That’s enough to change whether the car fits your budget. It needs to be part of the calculation from the start. 

Note: Figures are illustrative and assume a full year of private availability, no employee contributions, and an employer entitled to GST credits, using current rates and the statutory formula method. They cover the car benefit only, before income tax deductions. Your actual cost will depend on your circumstances. 

For a novated lease, this isn’t automatically an extra $11,700 out of your take-home pay. How the FBT is funded and the way the package is structured will affect the result. 

Which is why the monthly repayment is only part of the conversation. 

 

will your existing lease be protected? 

 

The proposal protects qualifying commitments made before the relevant deadlines while those commitments continue. 

So, if you already have an eligible arrangement, the proposed changes don’t automatically mean a new FBT bill from April 2027. 

But don’t assume the current treatment follows the car forever. 

Treasury’s draft materials identify several changes that can create a new commitment, including: 

  • refinancing the car 
  • changing lease terms or the residual value 
  • moving to a new employer 
  • renewing the lease on the same car. 

The commitment needs to be financially binding. The documents matter.  

If your lease is coming to an end, or you’re thinking about changing it, check the tax position before assuming the next arrangement will work the same way. 

 

does the car still stack up?

 

A tax saving still starts with spending money. 

So, before getting too caught up in the concession, look at the purchase itself. Does the business need another vehicle? Is this the right car for how it will be used? What will it cost over the full lease or ownership period? 

Then look at the cash. What are the repayments? What running costs sit on top? Is there a residual payment at the end, and how will you fund it? 

An EV may still make good financial sense with a smaller tax concession. The point is to understand the total cost and compare it with your other options. 

I’d want to know what the car will cost over the whole arrangement, how it affects cash flow and whether it suits the business. Then I’d look at the tax saving. 

It’s also worth checking the employee reporting side. An exempt car benefit can still need to be included when working out an employee’s reportable fringe benefits amount.  

 

check the numbers before you commit

 

These changes are still proposed, so the final legislation needs to be checked before you act. 

You can, however, start planning now. If a purchase or lease renewal is already on the cards, speak with your accountant and lease provider about the proposed rules and what they could mean for your costs. 

Before bringing forward a purchase to access the current concession, check whether the timing makes financial sense for you. Make sure the figures reflect the arrangement you’re actually entering into. 

The tax saving matters. So does what’s left for you to pay. 

 

we’re here to help 

If you have any questions or need a hand working out what the proposed EV changes could mean for your business or novated lease, you can contact me or give the team a buzz on 1300 BDEPOT. 

 

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