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By: Elizabeth Lucas
16 Sep 2026 4 min read
Draft legislation proposes replacing the current FBT exemption for electric vehicles with a 25 per cent FBT concession, with changes commencing from 1 April 2027 or 1 April 2029 depending on vehicle value.
Transitional rules may preserve the exemption for existing arrangements, provided a financially binding commitment was entered into before the relevant commencement date.
Feedback on the draft legislation will be obtained via a very short consultation period that closes 28 September 2026.
The draft legislation appears to be broadly in line with expectations. In particular:
An exemption is proposed to continue for a particular car where the last commitment relating to the car’s use or availability occurred before the relevant 1 April transition date, being 1 April 2027 for cars exceeding $75,000 in value and 1 April 2029 for cars valued at $75,000 or less. A commitment for these purposes would be financially binding and not able to be ‘backed out of’. A new commitment would include, for instance, a re-finance, or a change in employer.
Where a new commitment is made that causes an EV to move from exemption to the 25 per cent discount part-way through a year (such as due to a lease refinance for instance), the discount will be averaged for that year. For instance, if a car was provided for 300 days of a year and was fully exempt from FBT for 100 days and eligible for the 25 per cent discount for the remaining 200 days of the year, the relevant discount to be applied would be { (100 per cent x 100 + 25 per cent x 200 ) / 300 } = 50 per cent. This translates to a statutory fraction of 10 per cent.
The reference to the LCT threshold when determining whether exemption is lost from 1 April 2027, will change from looking at whether LCT actually applied, to looking at whether the ‘base value’ of the car is under the fuel efficient LCT threshold. We don’t expect this to have a material impact, as both tests look at the car’s acquisition cost.
Reportable fringe benefit amounts will continue to be calculated at the full taxable value, using either a 20 per cent statutory fraction, or the operating cost method, as has been the case during the period of full FBT exemption.
If the operating cost method is chosen once FBT exemption is lost, there is no concession. The concession only applies to reduce the statutory fraction method. Therefore, where cars are used for significant business purposes, we suggest employees be asked to keep logbooks, so that the operating cost method can be used where it is more advantageous than a 15 per cent statutory fraction.
If you would like to participate in a consultation submission or require specific advice on any aspect, please contact us.
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