In late October, the government introduced a new bill into the parliament to wind back a tax break for electric vehicles (EVs). It comes at a time when Australians are buying up EVs in record numbers - and many of them have used exactly that tax break to do it. So in this Squiz Shortcut, we’ll look at:

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Let’s start with the basics… What counts as an EV?
Get ready for some fun acronyms… The most common type of EV is actually a BEV which stands for battery electric vehicle, and it’s what you probably think of when you think about EVs - it’s the one that runs purely on electricity, so no petrol engine at all. The Tesla Model Y is a BEV, for example. 

And the other types?
There’s the PHEV, or plug-in hybrid electric vehicle - that one uses its battery for shorter trips and a petrol engine for longer ones. Then there are regular hybrids, which you never plug in - their battery charges itself while you drive. They’re not counted as EVs. 

How popular are EVs becoming?
Very… In May 2022, they made up about 1.8% of new car sales in Australia. In the first half of 2026, they made up about a quarter. That’s a huge increase, and the uptake has been particularly high in recent years… For the first time ever in August, fully electric cars outsold petrol cars in Australia, and they did it again in September and October. 

What’s driving it?
A few things… Some people buy them for environmental reasons, they’ve also become cheaper as Chinese-made models have come into the market, and high petrol prices have had plenty of people looking for an alternative. But one key reason was a federal government tax break…

Tell me about that…
It’s all to do with something called a novated lease, which is how some people pay for their car - the one they use in their personal life. Didn’t think you were in for a finance lesson, did you? Consider this a mini Shortcut within a Shortcut… 

Go on then… What’s a novated lease?
Basically how it works is that you make a deal with your employer, who handles the payments for the car and takes them out of your pay before tax… 

What’s the benefit?
It means your taxable income goes down, so you pay less tax. Normally, the fringe benefits tax (FBT) claws some of that saving back - but not for EVs…

What are the rules for EVs?
Since July 2022 - back when only 2 in every 100 cars sold in Australia were EVs - they’ve been exempt from FBT, as long as they don’t cost more than a certain threshold amount for luxury cars, which is currently around $92,000.

Does that extend to plug-in hybrids?
Not anymore… Plug-ins have been excluded from that particular tax break since April 2025, but it still exists for fully electric vehicles. And there are numbers suggesting that it’s had a direct impact on sales…

What are the numbers?
The Australian Financial Review reported that about 100,000 drivers had jumped on board this particular tax break by 2025, a much higher number than expected. Given that the government is broadly keen for people to invest in electric vehicles, you’d think this might be good news - but as we said, they recently introduced a bill to wind that tax break back. 

Why cut it back?
In short, it’s costing a lot. The government was fine with missing out on that tax revenue up to a point, but the tax break this financial year cost $1.75 billion and it was only supposed to cost in the tens of millions per year. And because the scheme is growing in popularity so much, it’s projected to get even more expensive. 

Is cost the only issue?
No… There was also a fairness issue. Treasury’s review of the tax break noted that the value of it was mostly going to people who were higher earners - and any worker whose business doesn’t have salary packaging couldn’t use it. So critics say it’s making EVs cheaper for people who could already potentially afford them, rather than making them affordable for people who couldn’t.

So what’s on the table?
The government has introduced legislation to tighten things up - but at the same time, it wants to retain the environmental benefit of more people using electric cars. What it’s proposing is this: if you already have a lease, nothing changes. But for new lease agreements entered into from 1 April next year, so 2027, you get the full exemption if your car costs less than $75,000. If your car value is over that, but below the luxury car threshold we mentioned earlier of $92,000, you only get a 25% discount on your fringe benefits tax.

And after that?
From 1 April 2029, the 25% discount applies across the board. The idea is to keep people buying EVs, while phasing the concession down over time so that the cost doesn’t balloon out.

What does the Coalition think about it?
It wants the whole tax break scrapped entirely, but only on new leases. Coalition leader Angus Taylor reckons that would save the budget $2.1 billion - and as you might’ve noticed recently, the Coalition has been hammering the government over its level of spending. 

And the EV industry?
The Electric Vehicle Council, the major EV industry body, says it’s happy with the phased approach. But the tax break isn’t the only concession that EV drivers get. They also don’t have to pay the fuel excise.

Remind me what the fuel excise is?
It’s a tax you pay every time you fill up. The government uses some of that money to fix and maintain roads. If you drive, you’ll know it was discounted for a while earlier this year because of the high fuel prices resulting from the Iran war. But it’s back in full - and it’s over 50c a litre.

How does it work for EV drivers if they don’t use petrol or diesel?
They don’t pay the excise, which means they’re not paying money that contributes to the roads they’re using. So there’s been an ongoing debate about whether they should pay a per-km charge to the government for every kilometre they drive. 

Is that on the cards?
State and federal governments are working on a plan for it. But electric vehicle advocates and companies say that a road user tax for only EVs would be unfair to EV drivers - Tesla, for example, wants that road user charge to apply to all vehicles. But it’s a tricky balance…

What has to be weighed up?
If the government brings in a road user charge, it might make EVs less appealing to consumers, which would hurt Australia’s environmental and emissions goals. By the same token, it needs to get the money to maintain our roads from somewhere - and if more and more people are driving EVs, the amount of money being collected to spend on road maintenance is going down. 

What if I’m in the market for an EV?
If a novated lease sounds good, you’ve got until 31 March next year to sign a lease under the current rules, and possibly take advantage of the tax break… 

Anything else to note?
Yep… The luxury car tax could change too. It applies to cars over $81,000, but for EVs it kicks in over $92,000. From July 2027, the government plans to lift that EV threshold to $120,000 under our free trade agreement with the EU. So, while one concession is shrinking, another is getting more generous. 

Where are things up to?
The bill is still working its way through parliament, so we’ll have to wait and see whether it passes in its current form. The federal and state governments are also yet to land on a road user charge for EVs. Put the 2 together and that’ll tell us whether Australia’s EV boom keeps charging ahead or begins to slow down.

Reading: This NRMA story will get you across the EV incentives available in Australia

Reading: This story in the Australian Financial Review (paywall) looks at the pressure building on Treasurer Jim Chalmers to cut the EV subsidy.