Coalition pledges to axe EV tax break used by small businesses

The Coalition has confirmed it will scrap Labor’s fringe benefits tax (FBT) exemption for electric vehicles (EVs) if elected, just two days after Opposition leader Peter Dutton said it wouldn’t. 

The pledge to cut the EV subsidy was included in a “wasteful spending” list of proposed savings measures released jointly by Dutton, Shadow Treasurer Angus Taylor and Shadow Finance Minister Jane Hume. 

The Coalition referred to the exemption as “taxpayer-funded and badly designed” and estimated that eliminating it would save $3 billion over the forward estimates and $23 billion over the medium term.

The backflip contradicts Dutton’s remarks on Monday, when he told reporters the Coalition would not repeal the tax break. “No, we’ve said that what we’re opposed to is the government’s big tax on hybrids,” Dutton said at the time. 

According to The Australian, a Coalition source has since claimed Dutton misheard the question. Taylor echoed this line in a follow-up interview with the ABC.

“Press conferences have many, many questions asked, often in a raucous environment, and Peter misheard the question,” Taylor said.

The policy is the latest in a string of campaign backtracks from the Coalition. Dutton has also reversed course on a previous plan to force public servants back to the office full-time—a move now described as “a mistake”.

Minister for Climate Change and Energy Chris Bowen likened the EV U-turn to that earlier misstep. “Two days ago, Peter Dutton clearly said he would keep the EV tax cut. Today he’s scrapped it,” Bowen said.

“If he can’t keep a policy for two days, how can he be prime minister for three years?”

What is the EV FBT exemption?

The FBT exemption, introduced by Labor in 2022, applies to electric vehicles priced under $91,387 that are acquired via a novated lease. It effectively removes up to $5,000 a year in tax liability for eligible employees by exempting the vehicle from fringe benefits tax when salary packaged.

While plug-in hybrid vehicles were initially included, they have been excluded from April 2025 under a deal struck with the Greens.

Despite voting against the FBT exemption in Parliament in 2022, the Coalition had not previously announced a repeal during this campaign until Wednesday’s press release.

Popular among workers and small business operators

The exemption has been adopted by workers in outer-suburban areas and used by small businesses to update fleet vehicles in a more cost-effective and environmentally friendly way. 

It is said to be particularly popular among SMEs using novated leases to provide EVs to employees without incurring hefty fringe benefits costs.

Rohan Martin, CEO of the National Automotive Leasing and Salary Packaging Association (NALSPA), said removing the exemption would hit those groups hardest. 

“The Coalition’s announcement that it would wind back electric vehicle subsidies will hurt everyday ordinary working Australians — at a time when the cost-of-living crisis, including escalating transport costs, is hitting hard,” Martin told SmartCompany.

Martin pointed to strong uptake in outer-suburban regions like Werribee, Baulkham Hills and Springfield, where employees and sole traders have used the policy to afford EVs. 

“Winding back the EV FBT exemption would increase the cost to own and operate a car for the many working Australians seeking to save money and reduce their carbon footprint,” Martin said. 

The Electric Vehicle Council also criticised the move, with CEO Julie Delvecchio calling the backflip both disappointing and confusing.

“The FBT exemption is incredibly popular among Australians living in the outer suburbs and helping many Australians across the country afford and manage the up-front cost of an EV — which we know is cheaper to run once you’re behind the wheel,” Delvecchio said.

Broader rollback on emissions and EV policies will leave Australia further behind

The decision to cut the exemption aligns with other Coalition pledges to scrap emissions-related vehicle policies, including the New Vehicle Efficiency Standard. 

That scheme is designed to lower average emissions across new car fleets by penalising automakers who fail to meet set targets. 

Critics like Nationals Senator Bridget McKenzie have referred to the standards as costly and unrealistic.

However, the removal of the FBT exemption could significantly widen the cost gap between electric and petrol vehicles, particularly for small businesses unable to buy vehicles in bulk or up front.

"Most surprisingly such a winding back doesn’t align with the Coalition’s own election pledges — like tax relief through an offset, scrapping the New Vehicle Efficiency Standard penalties to lower upfront car costs, and halving the fuel excise — because the EV FBT exemption successfully delivers on all those fronts," Martin said.

While the policy was projected to cost more than initially forecast, it remains one of the few federal EV incentives in Australia. 

In fact, the October 2022 Labor budget marked the first time a federal EV incentive even appeared in budget papers.

Australia has been playing catch-up since then and is still years behind other countries when it comes to EV policies, particularly those that benefit small businesses.

In the US, eligible EV buyers can receive up to $7,500 in federal tax credits under the Inflation Reduction Act, helping reduce upfront costs for both consumers and businesses.

In the UK, self-employed individuals and small businesses can claim a 100% first-year allowance, deducting the full cost of a new electric vehicle from their taxable profits.

Germany also offers a reduced fringe benefit tax rate of 0.25% for electric company cars with a list price up to €70,000, making EVs more attractive for business fleets.

Without the FBT exemption, Australia risks falling further behind in electrifying its vehicle fleet, both for individuals and businesses seeking to cut costs and carbon.

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