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The Future of Electric Vehicle Tax Breaks in Australia: A Potential Shift
As the Australian federal government aims to curtail expenditures, substantial tax benefits for electric vehicle (EV) owners may soon be discontinued. Currently, EV drivers enjoy significant savings due to exemptions from the Fringe Benefits Tax (FBT) and other financial incentives.
Tax Breaks Driving EV Purchases
Tom Gao, a Sydney resident, highlighted that the available tax breaks were pivotal in his decision to buy a Tesla. However, Danielle Wood, chair of the Productivity Commission, has indicated that these benefits might be reconsidered in favour of more cost-effective environmental initiatives. She stated, "Each of those has sort of an implicit cost per tonne of abatement. Some of those we’ve said in the past are pretty high, things like fringe benefit tax subsidies for EVs."
The FBT exemption, initially introduced by Prime Minister Anthony Albanese in 2022, was intended to boost EV adoption within Australia. This strategy appears to have succeeded, with sales figures from the Australian Automobile Association showing a rise in registered battery-powered electric vehicles (BEVs) from 6,752 in the first quarter of 2022 to 25,552 in the same period in 2024. However, recent trends show a drop in BEV sales as consumers shift towards plug-in hybrids, which offer a combination of electric and combustion engine technologies.
Understanding the Tax Benefits
EV purchasers can claim deductions on vehicles valued under $91,387 when the purchase is facilitated via a novated lease. This arrangement allows employers to cover lease repayments from employees’ pre-tax salaries, thus reducing their taxable income.
For instance, an employee acquiring a $68,000 EV through this leasing structure could potentially save around $13,296. According to the National Automotive Leasing and Salary Packaging Association, around 100,000 individuals have benefited from this tax exemption. Gao emphasised the importance of these tax breaks, stating, "I would not be buying an EV if FBT exemption is removed," suggesting that the removal of this benefit could lead to a remarkable decrease in EV purchases, as seen in other countries where government incentives play a critical role in EV uptake.
Current Legislative Context
As of March 2024, the government ended the FBT exemptions for plug-in hybrids. The Productivity Commission is now reviewing the existing FBT peace, with a report on the findings expected to precede an upcoming government summit. While Treasury originally projected that maintaining the FBT exemption would cost taxpayers approximately $55 million for the 2024-25 fiscal year, the Institute of Public Accountants has since reported figures exceeding $560 million annually.
Environmental and Economic Implications
The Commission revealed that the FBT exemption costs between $987 to $20,084 per tonne of carbon abatement, illustrating it as the costliest climate policy in the government’s portfolio. Comparatively, the next most expensive scheme—the E10 petrol discount—ranges from $128 to $274 per tonne. Although Gao recognises the exemption’s generous nature, he has acknowledged its potential to place an unfair burden on traditional internal combustion engine (ICE) vehicle owners.
While the discontinuation of the FBT exemption may loom, some experts suggest reallocating the funds towards broader carbon reduction strategies, such as extending carbon caps to transport and electricity sectors.
Political Reactions and Future Outlook
During the 2025 election campaign, the Coalition’s Peter Dutton signalled intentions to eliminate the exemption, triggering apprehension within the EV community. Electric Vehicle Council CEO Julie Delvecchio expressed her disappointment, arguing that the incentive has enabled many Australians to purchase EVs, which offer substantial savings in fuel and maintenance costs.
"The FBT exemption has been critical in lowering the upfront cost barrier," she stated, highlighting the risks of stalling EV adoption, particularly among residents in outer suburbs and regional areas where EVs have gained popularity.
Overall, while the future of EV tax breaks remains uncertain, the discourse surrounding them highlights the challenges of balancing fiscal responsibility with environmental objectives in Australia.
