“A good outcome:” Labor to cap FBT exemption for EVs – but not for another two years

The Australian federal Labor government has announced a gradual reduction in the Fringe Benefit Tax (FBT) exemption for electric vehicles (EVs), maintaining the current full exemption until 31 March 2027. After this date, the full FBT discount will only apply to EVs priced at $75,000 or less, while vehicles above this threshold but below the luxury car tax limit will receive a reduced 25 per cent exemption. From 1 April 2029, all EVs under the luxury car tax threshold will be eligible for only a 25 per cent FBT discount, marking a phased approach to scaling back the incentive. This policy shift follows a comprehensive government review of the Electric Car Discount (ECD), which highlighted the scheme’s significant fiscal cost—$2 billion over the first three years and projected to rise to $2.8 billion by 2028–29. The report also identified additional economic and compliance costs linked to the scheme, including market distortions and reduced tax revenues. Despite these concerns, the government emphasised the scheme’s success in expanding the EV market, noting a tripling of available EV models and increased affordability, particularly outside major urban centres. The Electric Vehicle Council welcomed the announcement, describing it as a positive outcome that preserves strong incentives for most EV buyers until 2029. The phased reduction is expected to encourage manufacturers to focus on producing more affordable and efficient EVs, supporting broader adoption across Australia. The government also reassured that existing vehicle leases would not be affected by the new rules, providing certainty for current EV users. While the review suggested exploring incentives related to vehicle-to-grid (V2G) technology to promote innovation and integration, this aspect was absent from the government’s announcement. Australia’s EV market, though growing with a record 14.5 per cent share of new car sales, still lags behind other Western nations. The ECD has been credited with boosting EV sales by an estimated 64,000 battery electric vehicles and 78,000 including plug-in hybrids over three years, although some uncertainty remains around these figures. The government’s approach signals a cautious but steady transition towards more sustainable transport options, balancing fiscal responsibility with ongoing support for EV uptake.