The Australian Government will gradually reduce incentives for electric vehicles (EVs), but they won’t be dropped entirely.
The existing Electric Car Discount (ECD), as the government calls it, will continue in full until March 31, 2027.
Under the scheme, EVs provided by employers to employees, including under a salary packaging arrangement, are exempted from Fringe Benefits Tax (FBT). This is contingent on the EV falling under the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles, which currently sits at $91,387.
From April 1, 2027 to March 31, 2029, the full FBT exemption will continue to apply, but only for EVs costing $75,000 or less. Vehicles above this price point but below the LCT threshold will instead receive only a 25 per cent discount on their payable FBT.
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From April 1, 2029, all EVs priced below the LCT threshold will be subject to the same 25 per cent discount on payable FBT.
Current arrangements will also be grandfathered, so that existing leaseholders are unaffected.
Eligible EVs will continue to be exempt from import duties, even as FBT exemptions change; there have also been separate moves to remove tariffs on imports from the European Union and create a new zero-emissions vehicle LCT threshold of $120,000 from July 1, 2027.
Additionally, the government has been aiming to spur uptake of EVs through the introduction of its New Vehicle Efficiency Standard (NVES).
This isn’t the first change made to the government’s ECD, which from its inception until 2025 also applied to plug-in hybrid vehicles (PHEVs).
The ECD came into effect on January 1, 2023, but was applied retrospectively to July 1, 2022. PHEVs ceased to be eligible from April 1, 2025.
The Australian Government’s statutory review of the ECD was announced in December 2025.
In the review, the government found the ECD helped spur EV sales, to the tune of an additional 64,000 units over the first three years to December 2025, and helped drive up the number of EVs offered in Australia.
“While the ECD appears to have successfully encouraged EV uptake, the changing context in which it operates means, over time, alternative policy approaches may be more fiscally efficient and equitable,” the government said in its review.
The government also ruled out reinstating PHEV eligibility for the incentives as PHEV sales have continued to grow and “do not face the same non-cost barriers as EVs”.
Rather than expand the program, the government is looking to gradually wind it back given the impact in lost tax revenue.
“The revenue costs of the ECD are increasing significantly,” the government said in the statutory review. “The tax expenditure from the Fringe Benefits Tax (FBT) exemption was estimated to be $2.0 billion over the first 3 years from 2022-23 to 2024-25.
“The annual tax expenditure is forecast to be $1.35 billion in 2025-26 and is expected to grow to $2.8 billion in 2028-29 based on the current trajectory and policy settings.”
The Electric Vehicle Council (EVC) praised the move to extend the ECD.
“This is good news for everyday Australians who are doing the sums on going electric,” said EVC chief executive Julie Delvecchio in a press release.
“The Albanese Government and Minister Bowen have listened and shown they understand EVs are a cost-of-living measure.
“This decision means most electric cars in Australia will remain eligible for the Electric Car Discount, allowing people to save thousands on their annual fuel bills.”
“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 (NALSPA) CEO Rohan Martin.
“The EV Discount has already helped more than 100,000 Australians overcome the upfront cost barrier to switching to a cheaper‑to‑run vehicle. Without it, many outer‑suburban families, essential workers and cost‑conscious households simply wouldn’t be able to make the switch.
“Whilst expert modelling underlined the importance of the current Electric Car Discount policy settings remaining in place until the EV market becomes self-sustaining, we recognise the government has a responsibility to balance fiscal sustainability with Australia’s transition to a low emissions future.
“The Electric Car Discount is Australia’s most effective demand‑side lever for EV uptake. International experience shows that withdrawing incentives too early stalls adoption, delays emissions reductions and leaves households exposed to ongoing fuel price volatility.”
However, the ECD had been criticised for its impact on tax revenue.
Speaking to the Australian Financial Review in March 2025, Institute of Public Accountants senior tax adviser Tony Greco estimated the government was losing approximately $564 million annually on tax revenue due to the exemption, despite Treasury having forecasted a cost of $55 million that financial year.
It’s worth noting Mr Greco’s estimation was based on an average EV cost of $60,000, spread across 100,000 novated leases.
The federal government says the program didn’t just drive up EV demand, it helped reduce the price of EVs. The median price for EVs fell by 22 per cent over the three years between 2021-22 and 2024-25, per the government’s review.
In the time since its introduction, EVs have gone from accounting for 1.8 per cent of the new-car market to 8.3 per cent last year.
The government has also cited other benefits of the ECD, including a reduction in air pollution and noise, and argued the uptake of EVs helps reduce Australia’s reliance on imported fuels.
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