The Government has announced changes to the electric car Fringe Benefit Tax (FBT) exemption, which has proven popular in encouraging Electric Vehicle (EV) adoption. The proposed changes retain strong incentives in the near term, but narrow and redesign the concession from 1 April 2029.
From 1 April 2029, a permanent 25% discount on FBT will apply to eligible electric cars valued up to and including the fuel‑efficient luxury car tax (LCT) threshold. Currently, electric cars benefit from a complete exemption from FBT. The changes will be implemented through a reduced 15% rate under the FBT statutory formula valuation method, compared to the standard 20% statutory rate.
Electric cars costing more than the fuel‑efficient LCT threshold will not qualify for the discount and will continue to be subject to the existing FBT rules.
To provide certainty for employers and employees already participating in EV arrangements, the following transitional rules will apply:
- All eligible electric cars will retain the FBT discount rate that applied when the arrangement first commenced. This ensures that businesses and employees who entered into EV arrangements based on existing incentives are not disadvantaged by later changes.
- Electric cars valued at $75,000 or less that are provided before 1 April 2029 will be eligible for a full (100%) FBT discount, effectively preserving the current exemption for these vehicles for the life of the arrangement.
- For electric cars valued between $75,000 and the fuel‑efficient LCT threshold (currently $91,387) provided between 1 April 2027 and 1 April 2029, a 25% FBT discount will apply. This will be delivered via a 15% statutory formula rate, aligning these vehicles with the long‑term settings that commence from 1 April 2029.
While these measures seek to navigate environmental policy and retain the strong interest in electric vehicles by employees, they also seek to balance this against the costs of the FBT exemption for the Government. Although existing salary packaging arrangements are to be grandfathered, the proposed changes highlight the importance of timing and vehicle value when entering into a new salary packaged EV.
