The Electric Car Discount Under Review: Strategic Implications for 2026 and Beyond

Electric vehicles (EVs) have moved from a niche choice to a mainstream business consideration. By late 2025, EVs accounted for more than 8% of new car sales in Australia, driven in no small part by generous tax incentives. One of the most significant is the Federal Government’s Electric Car Discount, introduced in mid-2022. For many businesses and employees, it has materially reduced the cost of owning or leasing an EV. 

However, the rules are now under official review. While no immediate changes are proposed, this is an important moment to understand the benefits, assess whether they suit your circumstances, and consider timing before potential changes arrive. 

The Current Framework: 2025–26 Thresholds

For businesses and employees, the financial incentives remain compelling under the current 2025–26 financial year settings:

• Fringe Benefits Tax (FBT) Exemption: Private use of an eligible zero or low-emissions vehicle remains exempt from FBT. For an employee on a top marginal tax rate, this can equate to an annual saving of several thousand dollars compared to a traditional internal combustion engine (ICE) vehicle.
• Luxury Car Tax (LCT) Threshold: The LCT threshold for fuel-efficient vehicles (defined since 1 July 2025 as those consuming 3.5L/100km or less) remains at $91,387. This is significantly higher than the $80,567 threshold for other vehicles, allowing for higher-specification EVs to be acquired without triggering the 33% LCT.
• Import Duty: Eligible EVs continue to benefit from a 0% customs duty rate, reducing the initial acquisition cost for the business.

Why the Review Matters Now

The Treasury is currently examining whether these concessions are still required to drive demand, or if they should be “tapered” as the market matures. Key areas of focus include:

1. Eligibility Caps: Whether the LCT threshold for FBT eligibility should be lowered to target “affordable” models rather than premium EVs.
2. Infrastructure Treatment: Clarifying the FBT status of home charging stations, which currently do not automatically share the same exemption as the vehicle itself.
3. Grandfathering Provisions: A critical concern for our clients is whether leases entered into today will remain exempt if the law changes in 2027. While “grandfathering” is standard practice, it is not guaranteed.

Strategic Recommendations

With the review panel due to report by mid-2027, there is a clear “Window of Opportunity” to lock in arrangements under the current, more generous rules.

• Review Novated Leasing: If you or your employees are considering a vehicle change in the next 18 months, there is a strong argument for initiating those arrangements before any potential legislative tightening.
• Audit Your “Held and Used” Dates: To qualify for the FBT exemption, the vehicle must be “held and used” for the first time on or after 1 July 2022. For second-hand EVs, this date is critical; if the car was first used by anyone before this date, the exemption does not apply.
• Analyse the PHEV Transition: Since 1 April 2025, Plug-in Hybrid Electric Vehicles (PHEVs) are generally no longer eligible for the FBT exemption for new arrangements. If you have an existing PHEV arrangement, ensure it is not inadvertently “reset” (e.g., through a lease extension), as this could trigger a loss of the exemption.

The Electric Car Discount is currently one of the most effective tax-planning tools for small-to-medium business owners and their teams. However, it is a “time-limited” benefit.

We recommend a proactive review of your motor vehicle strategy. We can help you model the cash-flow impact of an EV acquisition and ensure your business meets the rigorous ATO eligibility criteria to protect your FBT-exempt status. 

Want more information?

To discuss how this may impact your circumstances contact PPT on (03) 5331 3711.