Australia to Phase Out EV Tax Break, Saving $1.7 Billion but Adding Thousands to Leases

Key facts

• The FBT exemption for EVs over $75,000 ends April 2025; all EVs lose full exemption by April 2029.
• The government saves $1.7 billion over five years from the phase-out.
• From April 2027, EVs under $75,000 get a 25% FBT discount; above that, 75% of standard FBT applies.
• From April 2029, all EVs under the luxury car threshold ($91,387) face 75% of standard FBT.
• Luxury EVs (over $91,387) and used EVs from before July 2022 continue to pay full FBT.
• Existing leases are grandfathered; a five-year lease signed in early 2029 could remain exempt until mid-2030s.
• The scheme originally cost $90 million per year; actual uptake cost over $1 billion this year alone.
• Opposition Leader Angus Taylor called for immediate scrapping, calling the break a handout to the wealthy.

Tax Break Wind-Down Begins Next Year

The Australian government will begin rolling back a popular tax exemption for electric vehicles from April 2025, saving the budget an estimated $1.7 billion over five years. The move targets a program that proved far more expensive than anticipated, with uptake costing more than ten times the original $90 million annual forecast. Under the changes, electric vehicles priced above $75,000 will lose their full fringe benefits tax exemption from next year. All EVs will be subject to a reduced FBT rate from 2029, ending the complete waiver that has made novated leases a popular pathway for EV buyers.

Three-Stage Phase-Out Detailed

The phase-out proceeds in three stages. Until March 2025, the full exemption remains for all EVs under the luxury car tax threshold of $91,387. From April 2027, vehicles costing less than $75,000 retain the full exemption, while those between $75,000 and $91,387 face FBT at 75% of the standard rate. From April 2029, the exemption becomes a permanent 25% discount for all EVs below the luxury threshold. Luxury EVs above $91,387 and used EVs purchased before July 2022 will continue to pay full FBT. Existing lease agreements are grandfathered, meaning a five-year lease signed in early 2029 could remain exempt until the mid-2030s.

Government Defends Targeted Approach

Energy Minister Chris Bowen defended the changes, saying the proliferation of cheaper models allows the government to better target the incentive. 'Four years ago, there was no EV available for under $40,000 – now there’s about 10,' Bowen told ABC radio on Tuesday. He said the staged phase-out gives Australians time to plan purchases. Treasurer Jim Chalmers has made savings a priority for the upcoming federal budget, as global oil shocks from the US-Israeli conflict with Iran push up inflation and force costly cost-of-living relief measures. The government argues the original tax break was never intended to be permanent and that the new structure still favors EVs over petrol cars.

Opposition Calls for Immediate Scrapping

Opposition Leader Angus Taylor attacked the move as too slow, saying the tax break should be scrapped immediately. 'It should be wound back faster, immediately,' Taylor said at a press conference on Tuesday. He described the policy as a handout to the wealthiest Australians, noting it is not means-tested. The criticism highlights the political tensions around the budget, as the government balances green incentives with fiscal discipline. The opposition's stance suggests the EV tax break could become a flashpoint in the upcoming election campaign.

What the Changes Mean for Buyers

For a typical $50,000 petrol car acquired under a novated lease, FBT currently adds about $9,800 annually before deductions. A comparable EV currently pays no FBT, but from 2029 would face about $7,300 in FBT per year under the new 75% rate. The gap narrows but still favors EVs. Buyers of high-end EVs face the steepest impact: a $90,000 EV purchased after April 2025 will lose the full exemption and pay FBT at 75% of the standard rate from 2027. Those who act before March 2025 can lock in the full exemption for the lease term, potentially saving thousands over five years.

Wider Context and Outlook

The policy reversal comes amid a global fuel crisis that has pushed more drivers toward electric vehicles. The original tax break, introduced in July 2022, was designed to boost EV adoption when few affordable models existed. Now with about ten models under $40,000, the government says the incentive can be scaled back without derailing the transition. However, the phase-out may slow EV uptake among higher-income buyers who favored luxury models via novated leases. The government hopes the permanent 25% discount, combined with falling EV prices and rising fuel costs, will maintain momentum. The budget, due next week, will reveal whether further measures support the shift to electric transport.

The bottom line

• The full FBT exemption for EVs ends in stages: April 2025 for cars over $75,000, and April 2029 for all EVs.
• From 2029, all EVs under $91,387 get a 25% discount on FBT, while luxury EVs pay full tax.
• The government saves $1.7 billion over five years, reflecting the scheme's massive cost blowout.
• Existing leases are grandfathered, allowing early buyers to retain the exemption for the lease term.
• The opposition wants immediate scrapping, arguing the break benefits the wealthy without means testing.
• The changes aim to balance fiscal savings with continued EV adoption as cheaper models enter the market.