EV Salary Packaging and FBT Exemption Guide 2026

Salary packaging an electric car lets you pay for the car, and the cost of running it, from your pre-tax salary. Battery electric and hydrogen fuel cell cars priced under the luxury car tax threshold are exempt from fringe benefits tax, so your employer pays no FBT on the benefit either. The worked example below shows what that is worth on a $120,000 salary.

But the landscape has shifted. Plug-in hybrids lost their exemption from 1 April 2025, and the Government has announced further changes from 1 April 2027, which are not yet law. Here is what applies now, what has been proposed, and how to weigh the two.

How salary packaging an EV works

Salary packaging (also called salary sacrifice) allows you to pay for certain expenses from your pre-tax income, reducing your taxable income and the amount of tax you pay.

When you salary package a car through a novated lease, a three-way agreement is set up between you, your employer, and a leasing company. Your employer deducts the lease payments and agreed running costs directly from your gross salary before tax is calculated.

For most cars, this arrangement triggers Fringe Benefits Tax (FBT), a tax your employer pays on the benefit you receive. The FBT rate is currently 47%, which can significantly erode the savings.

However, for eligible electric vehicles, the FBT exemption changes the equation entirely.

The EV FBT exemption: why it matters

Since 1 July 2022, the Australian Government’s Electric Car Discount has exempted eligible zero and low-emission vehicles from FBT. This means the entire lease cost and associated running expenses can be paid from your pre-tax salary with no FBT payable.

What it is worth depends on your income, the car and the lease. In the worked example below, Sam earns $120,000, packages a $55,000 electric car with $15,000 a year of lease and running costs, and is $5,727 a year better off than paying the same costs from take-home pay, worked out at the 2026-27 tax rates. That is a saving of about 38 per cent on those costs.

Proposed changes from 1 April 2027

The Government has announced proposed changes to the Electric Car Discount applying from 1 April 2027. These announced changes need to be distinguished from the legislation currently in force. As at 21 October 2026, the proposed changes are not yet law. Employees considering a novated lease extending beyond 31 March 2027 should therefore consider both the current legislation and the potential effect of the announced changes.

The changes were announced on 5 May 2026, alongside the 2026-27 Federal Budget and the final report of the statutory review of the Electric Car Discount. Treasury consulted on draft legislation from 10 to 28 September 2026. As announced, they work in three stages:

• Until 31 March 2027: the current exemption continues in full for eligible electric cars below the luxury car tax threshold.
• From 1 April 2027 to 31 March 2029: the full exemption continues only for electric cars costing $75,000 or less. Cars costing more than $75,000 but below the luxury car tax threshold receive a 25 per cent discount on the FBT payable instead.
• From 1 April 2029: eligible electric cars below the luxury car tax threshold receive the 25 per cent discount on FBT payable. Under the draft legislation, cars valued at $75,000 or less keep the full exemption where the commitment to provide the car is made before 1 April 2029.

The Government has said existing arrangements will not be affected, and the Budget papers say an eligible car keeps the FBT treatment in place when its arrangement starts, for the life of that arrangement. Sam’s $55,000 car in the worked example sits under $75,000, so as announced it would keep the full exemption. For a car costing more than $75,000, the date the arrangement starts is what decides which treatment applies, so it is worth checking with your employer and your adviser before you commit.

What vehicles are eligible?

To qualify for the FBT exemption in 2026, a vehicle must meet all of the following criteria:

• Battery electric vehicle (BEV) or hydrogen fuel cell vehicle, the only vehicle types that qualify from 1 April 2025 onwards
• First held and used on or after 1 July 2022
• Value below the luxury car tax (LCT) threshold for fuel-efficient vehicles, currently $91,661 (GST-inclusive) for the 2026-27 financial year
• Designed to carry fewer than 9 passengers and a load of less than one tonne
• Never subject to luxury car tax at any point in the vehicle’s history

For second-hand and demonstrator vehicles, the vehicle’s LCT history should also be checked. A current purchase price below the applicable LCT threshold does not, by itself, establish eligibility.

Popular eligible models in 2026 include the Tesla Model 3 and Model Y, BYD Atto 3 and Seal, MG4, Hyundai Ioniq 5 and 6, Kia EV6, and Volvo EX30.

Plug-in hybrid vehicles: what changed from 1 April 2025

This is one of the most important changes for 2026. Plug-in hybrid electric vehicles (PHEVs) no longer qualify for the FBT exemption for new arrangements entered into from 1 April 2025.

Grandfathering rules

If you had an existing PHEV salary packaging arrangement before 1 April 2025, you may be able to continue claiming the exemption, but only if:

1. The vehicle was already being used for private purposes before 1 April 2025
2. There was a financially binding commitment in place before that date to continue providing the vehicle
3. No material changes have been made to the arrangement (refinancing, extending the lease term, or changing vehicles will cancel the exemption)

Delivery delays alone do not extend eligibility. If you ordered a PHEV before 1 April 2025 but it was not delivered and in use before that date, the exemption does not apply.

If you currently have a PHEV under a grandfathered arrangement, review the terms carefully with your employer and tax adviser to ensure the exemption is maintained.

What costs are covered under the exemption?

The FBT exemption applies not only to the lease payments but also to associated vehicle running costs, including:

• Registration and insurance
• Servicing, repairs, and maintenance
• Tyres
• Electricity for charging (including home charging)

For home charging, the ATO allows a shortcut method under Practical Compliance Guideline PCG 2024/2, which simplifies record keeping if you charge at home. The rate is 5.47 cents per kilometre for FBT years starting on or after 1 April 2026, and 4.20 cents per kilometre before that.

The treatment of charging electricity should be distinguished from the charging equipment itself. Providing a home charging station is not an exempt associated car expense and may give rise to a separate fringe benefit.

The reportable fringe benefits catch

While no FBT is payable on an exempt EV, the benefit is still reportable. This means the grossed-up value appears on your income statement and may affect:

• Income-tested government benefits (Family Tax Benefit, child care subsidy, HECS-HELP repayment thresholds)
• Medicare levy surcharge assessments
• Centrelink payments and other means-tested entitlements

It is critical to model the full impact on your net position before committing to salary packaging. The tax savings may be partially offset if your reportable fringe benefits push you into a different threshold for income-tested obligations.

A worked example: what Sam saves

Sam earns $120,000 a year and packages a $55,000 electric car through a novated lease. The lease payments, charging, insurance, registration and servicing come to $15,000 a year including GST. The figures use the 2026-27 tax rates, where Sam’s income sits in the 30% bracket, plus the 2% Medicare levy.

One more figure goes on Sam’s income statement. The car’s taxable value is 20% of its $55,000 cost, or $11,000, and grossed up at 1.8868 that becomes a reportable fringe benefit of $20,755. Sam pays no tax on it, but it counts towards the Medicare levy surcharge, Division 293, HELP repayments and some government benefits, which is the catch described above.

An electric car usually costs less to run than a petrol one as well, so against a petrol car bought from after-tax pay the gap is wider again. Your own figures depend on your income, the car and the lease, which is why we model them before anyone signs.

Running cost savings: EVs vs petrol vehicles

Beyond the FBT savings, electric vehicles deliver significantly lower running costs:

An employee driving 15,000 km per year could save $2,000-3,000 annually on running costs alone, before accounting for the pre-tax salary packaging benefit.

How to get started: five steps

1. Check your employment agreement, and confirm your employer offers salary packaging and novated leases
2. Choose an eligible vehicle, battery electric or hydrogen fuel cell, valued below $91,661 (GST-inclusive)
3. Get a novated lease quote, comparing providers and ensuring the quote includes all running costs
4. Model your tax position, working with your accountant to assess the impact on your taxable income, reportable fringe benefits, and any income-tested obligations
5. Set up the arrangement prospectively, because salary packaging must be documented and agreed before the benefit period begins

If you would like personalised modelling or guidance on whether EV salary packaging genuinely improves your net position, contact our team for a confidential discussion.

Key FBT rates and thresholds

Which column you need depends on what you are doing. If you are pricing a novated lease now, use 2026-27. If you are preparing or checking an FBT return, that is the year that ended 31 March 2026.

Frequently asked questions

Applies to: 2025-26 and 2026-27Source: Australian Taxation OfficeLast reviewed: 21 October 2026Written by: James Carey, Director, CAReviewed by: Gary Cao, Manager

Is the EV FBT exemption still available in 2026?

Yes. Under the legislation currently in force, qualifying vehicles remain eligible for the electric-car FBT exemption. Battery electric and hydrogen fuel cell cars that meet the criteria, including a value below the $91,661 LCT threshold for fuel-efficient vehicles in 2026-27, continue to qualify. However, the Government has announced proposed changes applying from 1 April 2027, which were not yet law as at 21 October 2026.

Can I still salary package a plug-in hybrid vehicle?

Plug-in hybrid electric vehicles (PHEVs) no longer qualify for the FBT exemption for new arrangements entered into from 1 April 2025. However, if you had an existing PHEV arrangement before that date with a financially binding commitment in place, the exemption may continue under grandfathering provisions. Any material change to the arrangement, such as refinancing or extending the lease, will cancel the exemption. New PHEV salary packaging arrangements will attract full FBT at 47%.

How much can I save by salary packaging an EV?

It depends on your tax rate, the car and the lease. In our worked example, an employee earning $120,000 who packages a $55,000 electric car with $15,000 a year of lease and running costs is about $5,727 a year better off than paying the same costs from after-tax pay, made up of $4,364 in income tax and Medicare levy and $1,364 in GST. The car also adds a reportable fringe benefit of $20,755 to their income statement, which is not taxed but counts for the Medicare levy surcharge, HELP repayments and some government benefits.

What is the maximum vehicle price for the EV FBT exemption?

The vehicle must be valued below the luxury car tax (LCT) threshold for fuel-efficient vehicles, which is $91,661 (GST-inclusive) for the 2026-27 financial year. If luxury car tax was ever payable on the vehicle, it does not qualify for the exemption.

Does the EV FBT exemption affect my HECS-HELP repayments or government benefits?

While no FBT is payable, the value of the benefit is still reportable on your income statement. This reportable fringe benefit amount is included in the income tests for HECS-HELP repayment thresholds, Family Tax Benefit, child care subsidy, Medicare levy surcharge, and other means-tested entitlements. It is important to model the full impact before committing to a salary packaging arrangement.

What changes to the EV FBT exemption have been proposed from 1 April 2027?

The Government announced on 5 May 2026 that, from 1 April 2027, the full FBT exemption would continue only for electric cars costing $75,000 or less, with cars above $75,000 and below the luxury car tax threshold receiving a 25 per cent discount on FBT payable. From 1 April 2029 the 25 per cent discount would apply to eligible cars generally, with cars of $75,000 or less committed to before that date keeping the full exemption. The Government has said existing arrangements will not be affected. As at 21 October 2026 these changes are proposed and not yet law.

Can my employer refuse to offer EV salary packaging?

Yes. Salary packaging is not a legal entitlement, so it depends on your employer’s policies and willingness to administer the arrangement. Some employers may not offer novated leases or may have restrictions on eligible vehicles. Check with your HR or payroll department before proceeding.

What happens to my EV salary packaging if I change jobs?

If you leave your employer, the novated lease arrangement with that employer ends. You will typically need to either refinance the lease in your own name, transfer the novated lease to your new employer (if they offer salary packaging), or pay out the remaining lease balance. Early termination fees may apply depending on the lease terms.

Related Reading

• FBT on Cars 2026: Rates, Calculation Methods and EV Exemptions
• FBT 2026: What You Need to Know Before 31 March
• R&D Tax Incentive, for EV and clean energy innovators

Speak to our team in North Sydney or Orange about salary packaging and EV strategies, or contact us.