Australia’s electric vehicle (EV) landscape is entering a critical phase. After several years of rapid uptake powered by generous incentives, the federal government has commenced a formal review of the Fringe Benefits Tax (FBT) exemption for electric vehicles — a policy widely credited with accelerating national EV adoption.
Originally introduced on 1 July 2022, the FBT exemption removed a significant cost barrier for employees accessing electric vehicles through employer-provided arrangements, particularly novated leases. As interest in EVs surged faster than expected, the policy delivered results — but also triggered substantial fiscal concerns.
In this blog, we unpack why the review is happening, what’s on the table, and what it might mean for businesses, employees, and the EV market.
Why the EV exemption exists – and how it’s performed
The FBT exemption was designed to stimulate the early adoption of zero‑ and low‑emission vehicles by removing FBT obligations on eligible cars priced below the Luxury Car Tax (LCT) threshold for fuel‑efficient vehicles (currently $91,387).
Its objective was simple: reduce EV operating costs and encourage a shift away from internal combustion engine vehicles. And it looks like it worked! Nearly 100,000 Australians have already benefited from the exemption.
EVs jumped from less than 2% of new car sales when the policy was introduced to around 10% by late 2025. Further, the number o fEV models on the market increased from 56 to over 160, with many more affordable options emerging. The exemption also helped expand EV access beyond inner‑city areas. Leasing data shows strong uptake in outer suburbs such as Baulkham Hills (NSW), Werribee (VIC) and Springfield (QLD).
While many point to the benefits the exemption has delivered, there’s little doubt that the fiscal impact has grown dramatically. Treasury estimates the FBT exemption will cost $1.35 billion in 2025/26.
The official review – what’s happening now
Required under legislation passed in 2022, the review will assess whether the exemption is still achieving its purpose and whether it should continue, be amended, or be abolished.
Key details:
- The Australian Centre for Evaluation and Treasury will lead the review, supported by climate and energy agencies.
- Terms of reference were released on 12 December 2025, coverin the exemption’s economic, environmental and market impacts.
- The public submission process has been open and various associations, bodies and individuals have been submitting their views.
A final report is not due until mid-2027.
What about plug-in hybrids?
That change was already made back on 1 April 2025. Plug-in hybrids were no longer eligible for the exemption from that date. The 1 April 2025 change was well publicised from the early days of the initiative, and existing vehicles prior to that date remain ‘grandfathered’.
Potential outcomes of the review
While the government has not signaled a preferred direction, industry analysts and public commentary outline several possible scenarios:
- The FBT exemption continues unchanged: many feel this is unlikely due to fiscal pressures.
- The FBT exemption is modified: possible adjustments might include applying means testing, lowering the LCT threshold, or applying a taxable value using a percentage of the car’s value (similar to the statutory method calculations for non-exempt cars).
- The FBT exemption is phased out: if the government conculdes the policy has achieved its core purpose (early adoption), a gradual wind-down could follow.
What this means for employers and employees
For employees, news of the review has certainly caused those in the know to consider getting an EV on a novated lease sooner rather than later, in order to avoid uncertainty post-review. In other words, those who were considering getting an EV at some stage in the near future are probably wanting to speed up their decision.
For employers, the exemption has been a valuable tool for attracting and retaining staff and reducing fleet emissions. Organisations will need to be across any changes which may impact financial reporting and their benefit offerings.
Stay tuned!
There is sure to be plenty of interest and discussion around the review over the next 12 months. Regardless of what happens, the outcome of the review will likely be a great influence on Australia’s EV landscape.