Electric vehicle tax break extended

Tipped until recently to be axed entirely as soon as this year’s federal budget, the Electric Car Discount has instead been extended.

Introduced in July 2022 and forecast to cost $605 million over seven years, the tax break has instead ballooned in cost as EV popularity has increased.

 In FY25-26, it is estimated to wipe $1.35 billion from revenue.

The budget blowout prompted calls for its abolition from some quarters such as the productivity commission, and until recently that appeared the federal government’s most likely path.

But the Middle East war has provided an incentive for it to continue, as the optics of discontinuing an EV incentive in an oil price spike are not good.

The ECD was also seen as balancing the introduction of the New Vehicle Efficiency Standard (NVES), which via CO2 penalties forcefully encourages car makers to introduce more electrified models.

Currently, the discount provides a valuable?Fringe Benefit Tax (FBT) exemption that can save thousands of dollars when a vehicle is purchased via a novated lease.

The discounts apply to EVs priced below the?Luxury Car Tax (LCT), which for the 2025-26 financial year stands at $91,387 for fuel efficient vehicles.

Under the revised scheme announced this week after a statutory review, the current full fringe benefits tax (FBT) exemption for eligible electric vehicles will remain until March 2027.

Between April 2027 and April 2029, the full exemption will apply only to EVs priced at $75,000 or less, with models above that price but below the LCT threshold receiving a reduced 25 per cent discount.

From April 2029 onwards, all eligible EVs under the luxury car tax threshold will receive a 25 per cent FBT discount rather than a full exemption.

Existing novated leases will not be affected, and EVs will continue to be exempt from import tariffs.

The government said the changes are expected to save the budget $1.7 billion over the next five years.

Responses from a wide variety of automotive and finance-related lobby and pressure groups has been generally positive to a phased wind down.

“At a time when Australians are feeling real pain at the pump, the Electric Car Discount is helping households take control of their fuel bills while reducing emissions and reliance on foreign-owned oil,” said National Automotive Leasing and Salary Packaging Association Rohan Martin.

NALSPA has campaigned heavily to retain the ECD, even running television commercials in its support.

But independent federal MP Monique Ryan rued any cut back in EV sales support.

“We are smack bang in the middle of the biggest fuel crisis of our lifetimes… now is not the time to start winding back the electric car discount,” said Ryan.

Matt Hobbs, auto industry consultant and managing director of Hobbs Advisory, who has provided regular guidance to carsales readers when it comes to schemes including the ECD and NVES described the wind down as a “sensible outcome”.

“The FBT exemption was a foundational piece of the deal that delivered the New Vehicle Efficiency Standard, and retaining it, even in modified form, keeps faith with industry and consumers who made decisions based on that bargain.

“You can’t separate the FBT exemption from the NVES. It was baked into the architecture that allowed industry to accept ambitious efficiency targets. Pulling it out entirely would have unravelled a carefully balanced settlement.

“The exemption was never just a tax measure, it was the demand-side counterweight to the supply-side obligations the NVES placed on manufacturers. Retaining it means the policy framework still hangs together.

“A staged transition to 2029 gives industry, leasing companies, and consumers the certainty they need to plan. Cliff-edges help no one.

“Locking in a permanent 25 per cent discount beyond 2029 is a meaningful signal the government understands EV affordability is still the challenge to crack.”

The next step in the federal government’s EV uptake strategy comes no later than the end of 2026 when it starts planning the next stage of NVES beyond 2029 and into the mid-2030s.

NVES is already having significant impact on the Australian auto industry with some brands facing significant fines if they don’t accelerate their introduction of EVs and reduce their reliance on fossil-fuelled vehicles in their sales line-ups.

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