Electric Vehicle Discounts Under Review: What It Means for Your Business

Mar 6, 2026 | Taxation

Electric Vehicle Discounts Under Review

What You Should Do Now

Electric vehicles are no longer a niche choice for tech enthusiasts or eco-warriors. By late 2025, they account for more than 8% of new car sales here in Australia, and a big part of that uptake has been driven by some genuinely attractive tax incentives. At TSP we’ve been helping Newcastle and Hunter Valley businesses navigate their tax obligations for more than 40 years, and I can tell you that the Federal Government’s Electric Car Discount – introduced in mid-2022 – has materially changed the conversation around vehicles for many of our clients.

That said, the rules are now under review. And while no immediate changes are on the table, I think this is exactly the right moment to make sure you understand what’s available, whether it suits your situation, and – importantly – whether you should be thinking about timing.

How the Electric Car Discount Actually Works

One of the first things I explain to clients is that this isn’t a cash rebate. It works through tax concessions, and when you understand them properly, the savings can be significant. There are three main components worth knowing about.

The biggest benefit for most businesses and employees is the Fringe Benefits Tax (FBT) exemption. Where an eligible electric vehicle is provided to an employee as a fringe benefit, private use is exempt from FBT. Without this exemption, FBT can effectively be charged at up to 47%. In practice, this can reduce the annual after-tax cost of a vehicle by thousands of dollars – which is not something to overlook. It’s worth noting that the exemption applies to battery electric vehicles and hydrogen fuel cell vehicles, but plug-in hybrid vehicles lost eligibility for new arrangements from 1 April 2025. The car also needs to have been first held and used after 1 July 2022 and be below the luxury car tax threshold at first purchase.

The second benefit is a higher luxury car tax (LCT) threshold for fuel-efficient vehicles. For 2025-26, that threshold sits at $91,387 for EVs, compared to $76,950 for other cars. This can prevent the 33% luxury car tax from applying to part of the purchase price, which makes a real difference at the higher end of the market.

Thirdly, certain electric vehicles are also exempt from the 5% customs duty, which reduces upfront acquisition costs. When you combine lower running costs (electricity versus fuel, and generally fewer servicing requirements), solid resale values, and these tax settings, the business case for EVs – particularly around salary packaging and small fleets – has genuinely strengthened.

Why the Government Is Reviewing the Rules

A statutory review of the Electric Car Discount has commenced, and the primary reason is cost. Uptake has exceeded the government’s original expectations, and the projected cost to the budget over the forward estimates has grown considerably.

The review is examining whether the concession is still needed to encourage EV adoption, whether eligibility settings should be tightened – for example, limiting benefits to certain vehicle types or price points – and how the discount interacts with other policies like the National Vehicle Emissions Standard that commenced in 2025.

Public consultation is underway, with a final report not due until mid-2027. Importantly, there’s no suggestion of immediate changes, and any reforms are more likely to be prospective rather than retrospective. But as with any policy under review, it’s sensible to stay informed.

What I’d Suggest You Do Right Now

Uncertainty can cause people to freeze up, and I understand that. But the current rules are clear and legislated, and there are some practical steps worth considering now.

If you’re considering replacing a vehicle in the next 12 to 24 months, now is a good time to review your fleet or salary packaging arrangements. Existing arrangements are generally expected to be grandfathered if changes do come in – though I want to be honest with you, we can’t guarantee that. What I can say is that for new arrangements, acting while the rules are clear and generous is a reasonable approach.

It’s also worth making sure that any vehicle you’re considering is clearly under the LCT threshold at first purchase and meets all eligibility criteria for the FBT exemption. And don’t assume that charging infrastructure provided alongside an eligible EV will automatically qualify for the exemption – it won’t necessarily, and that’s a detail that catches people out.

A Final Thought

The Electric Car Discount remains one of the most valuable concessions available for employee vehicles in Australia right now. While the review introduces some longer-term uncertainty, the commercial reality today is that EVs can deliver genuine tax and cash-flow savings when structured correctly.

If you’re considering an electric vehicle – either personally or through your business – I’d encourage you to run the numbers with us before making any decisions. We can look at your specific circumstances and give you a clear picture of what makes sense under the current rules.

Give us a call on 4926 4155 or email ad***@****************om.au and let’s have a chat. Or send us a message here

This article provides general information only and does not constitute tax or legal advice. Please contact TSP Accountants & Business Advisors for advice tailored to your specific circumstances.

Deidre Molloy | BCom, CA
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