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Electric Car FBT Exemption: What’s Changing in 2026?

February 11, 2026

As Australia continues its push toward cleaner transport solutions, the electric car Fringe Benefits Tax (FBT) exemption remains a key incentive for employers and employees. Introduced under the Treasury Laws Amendment (Electric Car Discount) Bill 2022, the exemption helps organisations support sustainability while offering valuable employee benefits. With new changes coming into effect for the 2025–2026 financial year, it’s important for businesses and salary packaging participants to understand what’s new.

Current Rules at a Glance

Under the existing framework, employers do not pay FBT on eligible electric cars and associated car expenses, provided several conditions are met:

  • The vehicle is a zero or low-emissions car — including battery electric, hydrogen fuel cell, or plug‑in hybrid electric vehicles (PHEVs).
  • The car was first held and used on or after 1 July 2022.
  • It is made available to a current employee or their associates.
  • Luxury Car Tax (LCT) has never been payable on the vehicle.
  • Salary‑packaged arrangements still qualify for the exemption.
  • Associated running costs (insurance, registration, repairs, charging) are also exempt.
  • Home charging stations remain taxable fringe benefits.

Key Updates Coming for FY2025–2026

Several important changes will affect eligibility from 2025 into 2026, particularly for plug‑in hybrids and vehicles close to the LCT threshold.

1. Plug‑In Hybrid Vehicles (PHEVs) Losing Eligibility

From 1 April 2025, PHEVs will no longer be considered zero or low‑emissions vehicles for FBT purposes. However, they may remain exempt only if both of the following apply:

  • The vehicle was used or available for private use before 1 April 2025, and that use was already exempt.
  • A financially binding commitment to continue providing private use existed before 1 April 2025.

Important notes:

  • Delivery delays do not extend eligibility.
  • Extending or refinancing a lease after 1 April 2025 is treated as a new commitment, eliminating FBT exemption access.

2. Updated LCT Threshold for Fuel‑Efficient Vehicles

From 1 July 2025, the LCT definition of a fuel‑efficient vehicle tightens from 7L/100 km to 3.5L/100 km. This may affect which vehicles qualify under LCT rules and therefore impact FBT exemption eligibility.

3. Streamlined Record‑Keeping

Employers will now be able to use existing corporate records instead of statutory declarations for certain fringe benefits, making compliance more efficient.

4. Government Review of the Exemption

A formal review of the electric car exemption will occur by mid‑2027, assessing its uptake and overall effectiveness.

Practical Tips for Employers in 2026

Managing PHEV Arrangements

  • Confirm the vehicle was used or available pre‑1 April 2025.
  • Ensure lease and use commitments were contractually binding before that date.
  • Be cautious: amending lease agreements after 1 April 2025 could void eligibility.

For All Electric Vehicle Benefits

  • Verify that LCT has never been payable on the car.
  • Review updated fuel‑efficient LCT thresholds when considering new fleet additions.

The FBT exemption continues to offer substantial savings for employers and employees participating in salary packaging arrangements. However, with tightening rules — especially around PHEVs — proactive planning is essential. Businesses providing EV benefits should review current agreements, reassess their fleet strategy, and ensure compliance with evolving ATO requirements.