FBT Electric Car Exemption: Eligibility, PHEV Cut-Offs, and What Counts
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Primary tax-year context: Current Australian tax settings
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The electric car FBT exemption can make a significant difference for both employers and employees — but it is all-or-nothing. Miss a single condition and FBT applies in full. This guide explains what qualifies, what the numbers look like, and where the rules tightened from 1 April 2025.
Eligibility checklist
You generally do not pay FBT on the private use of an electric car (and associated car expenses) if all of these conditions are met:
- The car is a zero or low emissions vehicle — meaning a battery electric vehicle (BEV), plug-in hybrid (PHEV, subject to the cut-off below), or fuel cell electric vehicle (FCEV).
- The car’s first use occurred on or after 1 July 2022, and the car was both held and used for the first time on or after that date.
- The car is made available to a current employee or their associate.
- Luxury car tax (LCT) was never payable on the importation or sale of the car. For 2025–26, the LCT threshold for fuel-efficient vehicles is $91,387 (GST inclusive). Cars priced above this threshold are excluded.
- The car was not subject to FBT before 1 July 2022.
All five conditions must be satisfied. There is no partial exemption.
Plug-in hybrids: the 1 April 2025 change
From 1 April 2025, a PHEV is no longer treated as a zero or low emissions vehicle for the purposes of the exemption. This means any new arrangement entered into after that date for a PHEV will attract FBT at the standard rate.
However, a PHEV can remain exempt under a grandfathering rule if both of these requirements are met:
- The vehicle was used (or available for use) before 1 April 2025 under an arrangement that was already exempt at that time.
- There is a financially binding commitment in place on 1 April 2025 to continue providing the car for private use on and after that date — and that commitment has not been replaced or renegotiated.
If the original financing or lease arrangement is restructured, refinanced, or replaced after 1 April 2025, the exemption ends from the date of that new commitment.
Battery electric vehicles and fuel cell vehicles are not affected by this change and remain eligible.
What is covered by the exemption
When the car benefit qualifies, the following associated benefits are also exempt from FBT:
- Fuel or electricity used to charge and run the car
- Registration and compulsory third-party insurance
- Comprehensive insurance
- Routine maintenance and servicing
- Tyres
The exemption covers the full package of running costs, not just the car itself.
What is not covered
Two common items fall outside the exemption regardless of what the car arrangement looks like:
- Home charging installation costs — the cost of installing a charger at the employee’s home is generally not covered unless it is included within the novated lease structure itself. The ATO’s position on this continues to be tested in practice.
- Salary packaging administration fees — fees charged by packaging providers or fleet managers are not part of the car benefit and are not exempt.
How the numbers look in practice
Consider an employee who salary packages a $60,000 BEV via a novated lease.
Without the exemption, FBT would be calculated on the taxable value of the car benefit. Under the statutory formula method, using a 20% statutory fraction, the annual FBT liability would be approximately $12,000 — an amount that either falls on the employer or is passed back to the employee as a post-tax contribution requirement.
With the exemption, FBT is $0. The employee accesses the full pre-tax salary sacrifice benefit with no FBT offset required. Depending on the employee’s marginal tax rate, the effective saving on an annual basis is typically in the range of $5,000 to $8,000 per year, compared to purchasing the same vehicle without salary packaging.
The actual saving depends on the employee’s income, marginal rate, the vehicle’s running costs, and the structure of the lease.
Reportable fringe benefits
Even when FBT is $0 under the exemption, the benefit is still a reportable fringe benefit amount (RFBA). The employer must report the grossed-up taxable value on the employee’s income statement. However, because the taxable value is $0, the RFBA is also $0 — so it does not affect the employee’s assessable income, Medicare levy surcharge threshold, HELP repayment income, or other income tests.
Practical pitfalls to avoid
- Assuming any hybrid qualifies — standard hybrids (non-plug-in) have never qualified.
- Overlooking the “first held and used” timing test. A demonstrator vehicle that was driven before 1 July 2022 would fail this test even if you purchase it later.
- Not verifying whether LCT was payable at the time of the original sale or importation.
- Assuming the PHEV grandfathering applies without checking whether a binding commitment existed on 1 April 2025.
- Failing to document the first-use date and financing commitment in writing.
Key takeaways
- The exemption is all-or-nothing: every condition must be met.
- BEVs and FCEVs remain fully eligible with no cut-off date.
- PHEVs lose eligibility for new arrangements from 1 April 2025; grandfathered arrangements remain exempt only if a binding commitment was in place before that date and has not been replaced.
- Associated running costs (fuel, insurance, maintenance, registration) are also exempt.
- The benefit is reportable on the income statement at a $0 taxable value — no downstream income test impact.
- Keep documentation of the first-use date and the financing commitment for any future ATO review.