Australia to phase out EV tax break, saving $1.7 billion as market matures

Key facts

• The FBT exemption for EVs costing over $75,000 ends April 2027.
• From April 2029, all EVs below the luxury car tax threshold will receive a 25% FBT discount.
• The government expects to save $1.7 billion over five years.
• Electric vehicle sales reached nearly 23% of new car sales in March, up from under 2% in May 2022.
• Existing leases are grandfathered and unaffected by the changes.
• The luxury car tax threshold for FBT purposes is $91,387.

Tax break for electric vehicles to be scaled back

The Australian government will phase out the popular fringe benefits tax (FBT) exemption for electric vehicles (EVs) over the next three years, saving an estimated $1.7 billion. The move, announced ahead of next week's federal budget, reflects the rapid maturation of the EV market and the need to contain costs from a program that has far exceeded initial forecasts. Treasurer Jim Chalmers and Energy Minister Chris Bowen said the changes would ensure tax settings remain suitable as more affordable models enter the market. The exemption, which currently applies to EVs priced under $91,387, was originally forecast to cost $90 million this year but has ballooned to more than 10 times that amount.

Three-phase transition to a permanent discount

Under the new plan, the full FBT exemption will continue until March 31, 2027. From April 1, 2027, to March 31, 2029, only EVs costing up to $75,000 will be fully exempt; vehicles between $75,000 and the luxury car threshold of $91,387 will receive a 25% discount on payable FBT. From April 1, 2029, all EVs below the luxury car tax threshold will be subject to a permanent 25% discount on FBT. Luxury EVs priced above $91,387 will continue to pay full FBT, as will used EVs first registered before July 2022. Existing lease agreements will be grandfathered, meaning a person who enters a five-year lease in early 2029 could remain FBT-exempt until the mid-2030s.

Political reaction and rationale

Energy Minister Chris Bowen defended the phase-out, noting that when the incentive was introduced four years ago, no EV was available for under $40,000; now there are about 10 models below that price. He said the changes would allow Australians to plan their purchases. Opposition Leader Angus Taylor criticised the government for not acting faster, arguing the tax break should be scrapped immediately. 'It's not means tested. It's some of the wealthiest Australians getting a handout,' he said at a press conference. The government, however, maintains that the phased approach balances fiscal responsibility with continued support for EV adoption.

Impact on consumers and the budget

For a $50,000 EV acquired under a novated lease, the current FBT exemption saves the driver about $9,800 per year compared to a petrol car. From 2029, that saving will shrink to roughly $7,300 annually under the 25% discount. The government's $1.7 billion saving over five years comes as it seeks to offset the cost of fuel excise cuts and other cost-of-living relief amid global oil price shocks. Chalmers said the budget would be 'calibrated for the conditions' while remaining consistent with the government's ambitions. The Electric Car Discount Review, released Tuesday, informed the changes.

Market transformation and future outlook

The EV market in Australia has undergone a dramatic shift. In March, nearly 23% of new cars sold were electric or plug-in hybrids, up from less than 2% in May 2022. The ministers noted that the strongest uptake of the EV tax cut has been outside inner cities, indicating broad geographic adoption. Chalmers and Bowen said in a joint statement: 'The electric car market has rapidly matured since we came to government, and these changes will ensure our tax settings are still suitable.' The government expects the permanent 25% discount, combined with continued import tariff exemptions, to maintain momentum while addressing budget pressures.

What the changes mean for buyers

For consumers, the key takeaway is that the full FBT exemption remains available until March 2027 for all eligible EVs. Those considering a high-end EV above $75,000 may want to act before April 2027 to lock in the full exemption under a grandfathered lease. After that, the discount structure becomes more targeted toward affordable models. The government's message is clear: the era of unlimited tax breaks for electric vehicles is ending, but the transition to a greener fleet will continue with a more calibrated incentive. As Chalmers put it, the budget 'will begin a year of ambitious reform.'

The bottom line

• The full FBT exemption for EVs ends March 2027; a phased reduction leads to a permanent 25% discount by April 2029.
• The government saves $1.7 billion over five years as the EV market matures.
• EVs costing under $75,000 remain fully exempt until April 2027; above that, a 25% discount applies until 2029.
• Existing leases are grandfathered, allowing long-term exemption for early adopters.
• Nearly 23% of new car sales in March were electric or plug-in hybrids, up from under 2% in May 2022.
• The changes aim to balance fiscal sustainability with continued support for affordable EV adoption.