Electric Vehicles and FBT: What Employers and Individuals Need to Know

As part of Australia’s transition to lower-emission transport, a range of incentives have been introduced to encourage the uptake of electric vehicles (EVs). One of the most significant measures is the Fringe Benefits Tax (FBT) exemption for eligible zero-emission vehicles, which has materially changed the way employers and employees approach salary packaging and fleet decisions.

This article outlines the current FBT treatment of electric vehicles, recent rule changes, and what employers and individuals should be aware of when considering EV arrangements.

What is the EV FBT exemption?

The Australian Government introduced an FBT exemption for eligible electric vehicles to support the uptake of zero-emission transport.

Where the exemption applies, employers are not required to pay FBT on the provision of an eligible electric vehicle to an employee. This can apply where the vehicle is provided as part of a salary packaging arrangement, novated lease, or company vehicle arrangement.

The exemption can significantly reduce the overall cost of providing an electric vehicle compared to traditional petrol or diesel vehicles.

Recent changes to EV FBT rules

A key change affecting electric vehicle arrangements relates to plug-in hybrid electric vehicles (PHEVs).

From 1 April 2025, PHEVs are no longer eligible for the EV FBT exemption for new commitments entered into on or after this date. Transitional arrangements may apply where an eligible commitment was already in place prior to 1 April 2025.

Battery electric vehicles (BEVs) remain eligible for the exemption, subject to meeting the relevant conditions.

As the rules are complex and may depend on timing and contractual arrangements, it is important to review eligibility before entering into or continuing an EV arrangement.

What vehicles are eligible?

The FBT exemption generally applies to eligible zero-emission vehicles, primarily battery electric vehicles.

To qualify, vehicles must also meet the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles. This threshold is indexed annually by the Australian Taxation Office (ATO) and is subject to change each financial year.

Eligibility is determined at the time the vehicle is first held or made available, and ongoing compliance is required to ensure the exemption continues to apply.

What does this mean for employers?

For employers, the EV FBT exemption can reduce the cost of providing eligible electric vehicles to employees.

Where the exemption applies:

No FBT is payable on the provision of the eligible vehicle
Salary packaging arrangements may become more cost-effective
Electric vehicles may become a more attractive component of remuneration packages

However, employers still have important compliance obligations. Even where FBT is not payable, employers must:

Determine and record the notional taxable value of the benefit
Report the value through the employee’s Reportable Fringe Benefits Amount (RFBA)
Ensure appropriate records are maintained to support eligibility

The RFBA is not an additional tax payable by the employee, but it may impact eligibility for certain government benefits and income-tested concessions.

What does this mean for employees?

For employees, the EV FBT exemption may reduce the overall cost of acquiring a vehicle through salary packaging or novated leasing arrangements.

The benefit of structuring a vehicle through salary packaging will vary depending on:

• Income level
• Lease structure
• Vehicle type and cost
• Running costs and financing arrangements

While electric vehicles may offer cost advantages under current rules, outcomes will vary depending on individual circumstances and should be assessed carefully before entering into an arrangement.

Salary packaging and novated leases

The introduction of the EV FBT exemption has made novated leasing arrangements more attractive for eligible electric vehicles.

In many cases, employees can salary package both the vehicle and running costs using pre-tax income, while employers benefit from simplified FBT treatment where eligibility conditions are met.

However, arrangements should be structured carefully to ensure compliance with ATO requirements and to confirm that the vehicle remains eligible for concessional treatment.

Ongoing compliance considerations

While the EV FBT exemption provides significant benefits, employers must continue to meet ongoing compliance obligations, including:

• Maintaining documentation supporting vehicle eligibility
• Tracking changes in employee arrangements
• Ensuring correct reporting through Single Touch Payroll
• Reviewing arrangements where vehicles are refinanced, transferred, or altered

Careful administration is essential to ensure the exemption continues to apply correctly.

How can Morrows help?

Electric vehicle arrangements can provide meaningful tax and cost advantages, but the rules are detailed and continue to evolve.

Whether you are considering introducing electric vehicles into your business fleet, structuring employee salary packaging arrangements, or reviewing existing EV benefits, our advisers can assist in assessing eligibility, compliance requirements, and potential cost outcomes.

For tailored advice based on your circumstances, please speak with your Morrows adviser.

Want to learn how to minimise your 2025-26 Tax Bill?

Our advisors have prepared Tax Minimisation guides for Individuals and Business owners. These guides outline the various strategies we can consider to help reduce your personal or business tax bill this financial year.

Fill in your details below, to gain access to these guides for free.