Electric cars have had an up-and-down journey, starting with excitement, then almost disappearing, and finally making a strong comeback. Fringe benefits tax (FBT) does not apply to eligible electric cars and related car expenses. The Fringe Benefits Tax (FBT) exemption for electric vehicles (EVs) provides significant tax relief for employers offering private use of eligible zero or low-emissions vehicles, such as battery electric, hydrogen fuel cell, and certain plug-in hybrid vehicles. In this blog, you will learn about the FBT exemption for electric vehicles and how the FBT exemptions will apply for plug-in hybrid electric vehicles (PHEVs) from 1 April 2025.
Eligibility Criteria for FBT Exempt Electric Vehicles
You do not incur FBT if you provide private use of an electric car that meets all the following conditions:
- the car is considered a zero or low-emissions vehicle
- it is first both held and used on or after 1 July 2022
- the car is utilised by a current employee or their associates
- luxury car tax (LCT) has never been applicable to the importation or sale of the car.
Benefits provided through a salary packaging arrangement are included in this exemption. The government will conduct a review of this exemption by mid-2027 to assess electric car uptake, and the ATO will provide an update when this review begins. You can consider getting in touch with your tax accountant to stay ahead of the update. You can also find someone near you by searching online for a ‘tax accountant near me’.
What vehicles can be considered zero or low emissions?
A vehicle is considered zero or low emissions if it meets both of the following criteria:
- It is one of the following types of vehicles:
- Battery electric vehicle
- Hydrogen fuel cell electric vehicle
- Plug-in hybrid electric vehicle (excluding hybrid vehicles that run solely on liquid petrol).
- It is a car designed to carry a load of less than one tonne and accommodate fewer than 9 passengers (including the driver).
Motorcycles and scooters do not qualify as cars for FBT purposes and are not eligible for the exemption, even if they are electric.
Reportable Fringe Benefits
Although the private use of an eligible electric car and its associated expenses are exempt from FBT, they are considered a reportable fringe benefit.
This means you must determine the notional taxable value of the benefits related to the private use of the exempt electric car and assess whether reporting is required.
Plug In Hybrid FBT Exemption
Starting from 1 April 2025, plug-in hybrid electric vehicles will no longer be classified as zero or low-emissions vehicles under fringe benefits tax (FBT) law and will not qualify for the electric car exemption. However, you can still apply for the electric car exemption if you meet the criteria outlined below.
- FBT exemption PHEV: When will it continue to be exempt?
You can apply for the electric car exemption if you meet the following conditions:
- Use of PHEV was exempt prior to 1 April 2025.
- You are financially obligated to continue providing private use of the vehicle from 1 April 2025 onwards (although any optional extension of the agreement is not considered binding).
- When a PHEV is no longer exempt
Starting from 1 April 2025, if there is any modification to an existing commitment, the plug in hybrid FBT exemption will no longer be applicable from the date of the new commitment.
To calculate the electricity cost for charging an exempt PHEV, determine the actual electricity expenses, not the EV home charging rate. Keep records to support how you calculated the fuel cost, including electricity used. For accurate records, you can opt for bookkeeper services in Melbourne.
Conclusion
For vehicles first used on or after 1 July 2022, and meeting specific criteria, FBT is not incurred. However, from 1 April 2025, plug-in hybrid electric vehicles (PHEVs) will no longer qualify for this exemption unless they were already exempt before that date, and the commitment for their private use continues without modification. Taxpayers should stay informed of any updates by reaching out to Reliable Melbourne Accountants.