# The electric car FBT exemption, explained Since 1 July 2022, eligible electric cars provided through an employer, including on a novated lease, can be exempt from fringe benefits tax (FBT). It is the main reason novated leases on electric cars cost so much less than on petrol cars. ## The short answer An electric car can be FBT exempt on a novated lease when it is a zero or low emissions vehicle, its first retail price is under the luxury car tax threshold for fuel-efficient cars, and it was first held and used on or after 1 July 2022. Plug-in hybrids stopped qualifying from 1 April 2025, except under arrangements already in place. The exempt benefit still counts as a reportable fringe benefit. Changes announced in the May 2026 Budget (not yet law) narrow the full exemption to cars under a lower price threshold from 1 April 2027, and give new arrangements a partial discount from 1 April 2029. Existing leases aren’t affected. ## Which cars qualify The ATO sets the conditions. In short, the car must be: - A zero or low emissions vehicle: battery electric or hydrogen fuel cell. Plug-in hybrids qualified until 31 March 2025, and only arrangements in place before then continue. - Under the luxury car tax threshold for fuel-efficient vehicles at its first retail sale. - First held and used on or after 1 July 2022. - Provided through an employer to a current employee, for example on a novated lease. ## Why it makes such a difference On a petrol car, a novated lease usually needs a post-tax contribution to cover FBT, which takes back part of the saving. On an exempt electric car there is no FBT to cover, so more of the lease and running costs can come from pre-tax pay. The exempt benefit still appears on your income statement as a reportable fringe benefit. That can affect income tests such as the Medicare levy surcharge, some government payments and child support. ## What changes in 2027 and 2029 The Government announced the changes in the May 2026 Budget and released draft law for consultation in September 2026. They are not law yet. As announced: - Until 31 March 2027: no change. - From 1 April 2027: the full exemption is for cars under a new, lower price threshold. Cars above it, up to the luxury car tax threshold, get a partial discount on the FBT instead. - From 1 April 2029: new arrangements get the partial discount, whatever the price. - Existing leases aren’t affected. Under the draft law, cars under the lower threshold keep the full exemption where the commitment to provide the car is made before 1 April 2029. ## What to check before you sign Confirm the car’s value against the thresholds, when the commitment is made and when the car is provided, and what happens if you change jobs during the lease. Check the final law and ATO guidance: the changes are not law yet, and details such as how the lower threshold is measured are set by the legislation. ## Worked examples Open an example in the Navo engine, add your own income, and see the figures for every way to pay. [Work it out](https://navo.au/#start). - **A new electric car arriving next month.** Salary packaging at work, a new electric car under the threshold, owning it at the end. - **A plug-in hybrid.** The same employer, a new plug-in hybrid instead: see how the result changes without the exemption. ## Questions ### Are plug-in hybrids still FBT exempt? Not for new arrangements. Plug-in hybrids stopped qualifying from 1 April 2025; arrangements in place before then can continue under the old rules. ### Does the exemption apply to used electric cars? It can, if the car was first held and used on or after 1 July 2022 and its first retail price was under the threshold. Check the car’s history. ### Does an FBT-exempt car affect my tax return? The benefit is shown as a reportable fringe benefit. It isn’t taxed as income, but it counts in some income tests, like the Medicare levy surcharge. ### What changes in 2027 and 2029? As announced in the May 2026 Budget: from 1 April 2027 the full exemption is for cars under a lower price threshold, with a partial discount above it, and from 1 April 2029 new arrangements get the partial discount. Existing leases aren’t affected. It is not law yet. ## Related guides - [Novated lease or car loan: which way to pay?](https://navo.au/guides/novated-lease-vs-car-loan/) - [What happens to a novated lease when you change jobs](https://navo.au/guides/novated-lease-changing-jobs/) Reviewed 2026-10-07. --- General information only, not tax advice. Based on ATO guidance as reviewed on the date shown; check current ATO guidance. Navo's results are general information and indicative only. They are based on what you tell us and our assumptions, are not a credit assessment, quote or tax advice, and don't take all of your circumstances into account. Credit is subject to the lender's criteria. Fees and charges apply. Navo is a trading name of Blackrock Leasing Pty Ltd ABN 15 681 267 818, Australian Credit Licence 569484.