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FBT on plug-in hybrid electric vehicles

How FBT exemptions apply to plug-in hybrid electric vehicles (PHEVs) from 1 April 2025.

Published 8 October 2024

PHEV eligibility for FBT exemption

From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under fringe benefits tax (FBT) law and isn't eligible for the electric cars exemption. However, you can continue to apply the electric car exemption where you meet the requirements below.

When a PHEV will continue to be exempt

You can continue to apply the electric car exemption if you meet both the following requirements:

  • Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025.
  • You have a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025 (but any optional extension of the agreement is not considered binding).

When a PHEV is no longer exempt

If there is a change to a pre-existing commitment on or after 1 April 2025, the FBT exemption for the plug-in hybrid electric vehicle will no longer apply from the date of that new commitment.

What a commitment is

You have entered into a commitment at the point there is an obligation to undertake a transaction and it cannot be backed out of. The commitment must:

  • be financially binding on one or more of the parties
  • relate to the private use, or availability for private use, of the car to an employee or associate.

An example of entering a commitment is where an employer commits to the purchase or lease of a car, including a novated lease arrangement.

Eligibility for the FBT exemption ceases

Some changes to pre-existing commitments result in a new commitment and therefore the employer will no longer be eligible for the FBT exemption from that time:

Optional extensions

You won't be eligible for the FBT exemption from the time you have an option to extend an agreement. This is because it is not a financially binding commitment. To be a financially binding commitment, it must be for a pre-determined period when the commitment is entered into.

Example: exemption applies to original agreement without extension

Simon enters into a novated lease with his employer and a finance company that entitles him to use a plug-in hybrid electric vehicle.

The lease begins on 1 April 2024 and is for 3 years, to 31 March 2027. There is an option to extend the lease for a further 2 years from 1 April 2027.

Simon's private use of the vehicle is exempt from FBT up to 31 March 2027. This is because:

  • he starts using the vehicle before 1 April 2025 and the requirements of the electric car exemption are met
  • there is a binding commitment to continue providing the vehicle until 31 March 2027.

However, the exemption will not apply after 31 March 2027, even if the option is taken to extend the lease for an additional 2 years. This is because, at the time the exemption for plug-in hybrid vehicles ends (just before 1 April 2025), the extension is conditional on it being exercised at a future time. Therefore, the agreement at that time was not a binding commitment beyond 31 March 2027.

End of example

Breaks in novation agreements

You won't be eligible for the FBT exemption from the time you have any break in the novation agreement. This is because the break results in the car not being used, or available for the private use, of the employee under the agreement.

If the novation doesn’t end, there would be no change in the commitment and the FBT exemption would be maintained.

Example: employee on unpaid leave

Tony entered a 4-year novated lease arrangement on 1 September 2024 for a plug-in hybrid electric vehicle.

On 1 May 2025, he takes a 3-month period of unpaid leave. While on unpaid leave, Tony is personally responsible for the lease payments and services on the vehicle as the novated lease ends and a car fringe benefit isn't provided during that period. Once Tony returns to work the novated lease recommences and his employer is again responsible for paying the lease payments and services from Tony’s pre-tax salary. The overall lease end date doesn't change.

The end of the novation arrangement means there has been an alteration to the commitment that began before 1 April 2025, which will result in a new commitment.

Tony’s employer isn't entitled to the FBT exemption for the vehicle from 1 May 2025.

A car benefit is not provided to Tony while he is on unpaid leave. However, Tony’s employer would need to work out how to value the car fringe benefit when Tony returns from leave from the 1 August 2025 onwards.

If Tony prepays the lease repayments in advance to his employer before going on unpaid leave, and the novation doesn’t stop, there would be no change in the in the commitment and the FBT exemption would be maintained.

End of example

Changes to the financial obligations

You won't be eligible for the FBT exemption from the time there is any change to the financial obligations of one of the parties under a lease because of a change to the lease agreement. This is because there is a change to a financially binding commitment. This includes changes to lease payments or the residual value of the car.

 

Example: adding a new service

Before 1 April 2025, Katie entered into an arrangement with her employer to salary sacrifice a plug-in hybrid electric vehicle lease payments that included a bundled service charge for key maintenance and servicing needs. The agreement provides flexibility in the amount to be charged.

On 4 August 2025, Katie adds roadside assist to her bundled service charge for safety reasons.

As a lease agreement includes a bundled service charge that provides flexibility in the amount to be charged, a change to the amount charged doesn't result in a new agreement. An alteration in lease payments or other obligations under a clause permitting such changes is not a change in the financial obligations in the lease agreement.

Katie’s employer is entitled to the FBT exemption for the remainder of the period of the lease despite the addition of the roadside assist.

End of example

 

Example: adding car accessories

Cade entered a 2-year novated lease arrangement on 7 February 2025 for a plug-in hybrid electric vehicle. Cade is planning a big trip and has some additional accessories added to the vehicle on 1 July 2025, including a bull bar and luggage racks. The accessories are added as part of the novated lease.

The addition of these items results in a change in the residual value of the car and the lease payments. This means that there has been an alteration to the commitment that began before 1 April 2025, which will result in a new commitment.

Cade’s employer is not entitled to the FBT exemption for the vehicle from 1 July 2025. Cade’s employer would need to work out how to value the car fringe benefit.

End of example

Example: change of car due to car accident

Hudson entered a novated lease arrangement in December 2024 for a plug-in hybrid electric vehicle.

In December 2025, the vehicle is involved in an accident, causing severe damage so the insurance company treats the event as a ‘write off’ and replaces the vehicle. The replacement plug-in hybrid electric vehicle is not ‘like for like’ but is a comparable model with similar features (as agreed to by the insurance company). The replacement vehicle is noted on the existing contract. All other contract details including pricing and the end date of the contract remain the same.

This is not an alteration to a pre-existing commitment that began before 1 April 2025 and doesn't result in a new commitment.

The employer is entitled to the exemption for the remainder of the novated lease period, as long as there are no changes to the lease.

End of example

Change of employer

You won't be eligible for the FBT exemption from the time there is a change of employer. Any change of employer for FBT purposes, even within the same group of companies, is a new commitment to the application or availability of the car by the new employer.

Example: change of employer

Courtney entered a 3-year novated lease arrangement on 1 June 2024 for a plug-in hybrid electric vehicle.

On 2 May 2025, Courtney is made redundant and the lease is no longer novated. Her employer at that time is entitled to the FBT exemption for the plug-in hybrid electric vehicle until 2 May 2025.

On 1 October 2025, Courtney starts new employment. The new employer agrees to a novated lease arrangement for the same vehicle. The end date of the lease remains unchanged.

The change in employer means there has been an alteration to the pre-existing commitment that began before 1 April 2025, which will result in a new commitment.

Courtney’s new employer is not entitled to the FBT exemption for the vehicle. This would still be the case even if Courtney left her original employment voluntarily. Courtney’s new employer would need to work out the taxable value of the car fringe benefit.

If Courtney was to transfer departments or branches and her employer for FBT purposes remained the same, and there was no break in the novated lease agreement, then the FBT exemption would be maintained.

End of example

If there's no commitment before 1 April 2025

An employer isn't entitled to an exemption in FBT from 1 April 2025 if there was no binding financial commitment, to provide the car to a particular employee, in place before then

Example: pool car

A sales company has a ‘pool’ of plug-in hybrid electric vehicles for employees to use for sales calls. Vehicles are not assigned to a particular employee. Employees book an available car through a car booking system on a day-to-day basis. The pool cars can be taken home at night and can be used for private purposes. The pool cars are used both pre and post 31 March 2025.

Each time an employee drives the car, it is a separate car benefit and the employer needs to check if the requirements for the FBT electric vehicle exemption are satisfied.

The employer is not entitled to the exemption from 1 April 2025 because there is no binding financial commitment in place to provide that car to a single, designated employee before then.

End of example

 

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