FBT Update: Plug-in Hybrid Electric Vehicles (PHEVs) Lose Electric Car Exemption from 1 April 2025
From 1 April 2025, a plug-in hybrid electric vehicle (‘PHEV’) will no longer qualify as a zero
or low emissions vehicle under fringe benefits tax (‘FBT’) law. This change means PHEVs will no longer be eligible for the electric car exemption.
However, employers may still apply the electric car exemption for PHEVs if both of the following conditions are met:
- Exemption Applied Before 1 April 2025: The use of the PHEV was exempt from FBT prior to this date.
- Financially Binding Commitment: The employer has a binding agreement in place to continue providing private use of the vehicle to the employee (or their associate) on or after 1 April 2025. Note that optional extensions to agreements are not considered binding.
What Constitutes a Binding Commitment?
A binding commitment arises when the employer is obligated to a transaction they cannot withdraw from. This must involve financial obligations tied to the private use or availability of the car for the employee or their associate.
For instance, entering into a novated lease or purchasing a vehicle for this purpose qualifies as a binding commitment.
Key Considerations Post-1 April 2025
- If an existing agreement is changed or extended after 1 April 2025, the FBT exemption will no longer apply from the date of the new commitment.
- Employers cannot claim the FBT exemption for PHEVs after 1 April 2025 if no financially binding agreement was in place prior to this date.
This change highlights the importance of reviewing employee vehicle arrangements well before the cut-off date to ensure compliance with the updated FBT rules.
If you have any questions about your vehicle and FBT, please don’t hesitate to reach out to our tax consultant at W Wen & Co. Call us directly at 02 9871 3429.