Electric vehicles (EVs) are no longer a niche choice. By late 2025, they account 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.
That said, the rules are now under 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.
How the Electric Car Discount Works (in Plain English)
The discount is not a cash rebate. Instead, it operates through tax concessions that can significantly reduce the real cost of an EV:
1. Fringe Benefits Tax (FBT) exemption
Where an eligible EV is provided to an employee as a fringe benefit, private use is exempt from FBT. This is often the biggest saving. Without the exemption, FBT is effectively charged at up to 47%. For many employees, the exemption can reduce the annual after-tax cost of a vehicle by thousands of dollars.
Important points:
- The exemption applies to battery electric vehicles and hydrogen fuel cell vehicles.
- Plug-in hybrid vehicles lost eligibility for new arrangements from 1 April 2025.
- The car must be first held and used after 1 July 2022 and be below the luxury car tax threshold at first purchase.
2. Higher luxury car tax (LCT) threshold
Fuel-efficient vehicles, including EVs, benefit from a higher LCT threshold ($91,387 for 2025–26, compared to $76,950 for other cars). This can prevent the 33% luxury car tax applying to part of the purchase price.
3. Reduced import costs
Certain EVs are also exempt from the 5% customs duty, reducing upfront acquisition costs.
Commercially, these settings have made EVs very competitive. Lower running costs (electricity versus fuel, fewer servicing requirements) and solid resale values have strengthened the business case, particularly for salary packaging and small fleets.
Why the Government Is Reviewing the Rules
A statutory review of the Electric Car Discount has now commenced. The key reason is cost. Uptake has exceeded expectations, and the projected cost to the budget has increased significantly over the forward estimates.
The review will examine:
- Whether the concession is still required to encourage EV adoption.
- Whether eligibility settings should be tightened (for example, limiting benefits to certain vehicle types or price points).
- How the discount interacts with other policies, such as the National Vehicle Emissions Standard commencing in 2025.
Public consultation is underway, with a final report not due until mid-2027. Importantly, there is no suggestion of immediate changes, and any reforms are more likely to be prospective.
Practical Takeaways for Business Owners and Employees
While uncertainty always creates hesitation, the current rules are clear and legislated. From a practical perspective:
- Now is a good time to review fleet or salary packaging arrangements, particularly if you are considering replacing a vehicle in the next 12–24 months.
- Existing arrangements are expected to be grandfathered, reducing the risk of retrospective changes (although we can’t guarantee this).
- Ensure vehicles are clearly under the LCT threshold at first purchase and meet all eligibility criteria if you want to access the FBT exemption.
- Check the tax treatment of charging infrastructure provided in connection with an eligible EV, this won’t necessarily qualify for an FBT exemption.
Final Thought
The Electric Car Discount remains one of the most valuable concessions available for employee vehicles. While a review introduces longer-term uncertainty, the commercial reality today is that EVs can deliver genuine tax and cash-flow savings when structured correctly.
If you are considering an EV—either personally or through your business—now is the right time to run the numbers. Please contact our team if you would like tailored advice on whether an electric vehicle strategy makes sense for you under the current rules.
Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
