FBT exemption for PHEVs expiring in April 2025

To qualify for the exemption, the vehicles must meet the following criteria:

1. Below the Luxury Car Tax (LCT) Threshold: For the 2022/23 financial year, this threshold is $84,916. For the 2024/25 financial year, it will be $91,387.
2. First Held for Use from 1 July 2022: The exemption applies retrospectively from this date.
3. Tool of Trade or Novated Lease: The vehicle must be provided either as a tool of trade or through a novated lease arrangement.

Important note for used vehicles: If the vehicle is used, it must not have been liable for Luxury Car Tax at any point in its history. This means it should have been under the LCT threshold at the time of its first registration.

FBT exemption for PHEVs ending on 1 April 2025

The FBT exemption for Plug-in Hybrid Electric Vehicles (PHEVs) will end on 1 April 2025. After this date, PHEVs will no longer be considered zero or low-emission vehicles under FBT law.

However, the exemption can continue to apply if:

1. The use of the vehicle was exempt before 1 April 2025: The vehicle must have been under the FBT exemption prior to this date.
2. A financially binding commitment exists: There must be a binding commitment to continue providing private use of the vehicle beyond 1 April 2025. Optional extensions to agreements do not count as binding commitments and any “extensions” to existing contracts after 1 April 2025 will mean that FBT will become applicable from that point.

Example of an exemption

Simon entered a novated lease for a PHEV starting 1 April 2024, with the lease term ending 31 March 2027. Although there’s an option to extend the lease for another 2 years, Simon's private use of the vehicle remains exempt from FBT until 31 March 2027, because:

• The vehicle was in use before 1 April 2025.
• There is a binding commitment to provide the vehicle until 31 March 2027.

However, if the lease is extended beyond this date, the exemption will not apply after 31 March 2027, because the extension option was not considered binding at the time the exemption ends.

*Example above was taken from the Australian Taxation Office (ATO) website.

Impact of the FBT exemption ending

When the FBT exemption for PHEVs ends on 1 April 2025, several implications for fleet managers should be considered:

1. Increased costs: Employers will need to account for FBT on PHEVs (for new contracts or contracts amended after 1 April 2025) in the same way they do for other vehicles, which can increase the overall cost of providing these vehicles. This additional cost might affect budgeting and financial planning your fleet.
2. Decision-making: The end of the exemption could prompt a re-evaluation of fleet policies. Employers might reconsider whether to continue offering PHEVs or switch to vehicle types that still benefit from tax incentives.
3. Employee benefits package: The attractiveness of PHEVs as part of employee benefits packages might diminish due to the increased tax liability. Employers may need to explore other ways to offer competitive benefits or consider other environmentally friendly options that still provide tax advantages.
4. Lease and purchase decisions: Fleet managers may need to adjust their lease and purchase strategies. For example, they might prioritise acquiring or leasing PHEVs before the exemption ends to take advantage of the tax benefits, or they might accelerate the acquisition of vehicles to minimise FBT exposure.

Continued exemptions for BEVs and FCEVs

It's important to note that the FBT exemption for Battery Electric Vehicles (BEVs) and Hydrogen Fuel Cell Electric Vehicles (FCEVs) will remain in place beyond 1 April 2025.

Fleet managers should consider focusing on these vehicles to benefit from ongoing tax exemptions.

Strategic considerations

To make the most of the current FBT exemption and mitigate the impact of the upcoming changes:

1. Take advantage of the exemption: If your organisation is considering PHEVs, now is the time to act. Acquiring or leasing PHEVs before 1 April 2025 allows you to benefit from the current FBT exemption and maximise cost savings.
2. Review fleet policy: Reevaluate your fleet policy and make informed decisions based on the projected changes. Consider how the end of the exemption will affect your fleet's cost structure and employee benefits.
3. Consult with experts: Engage with fleet management consultants to understand the full implications of the change. They can provide tailored advice on how to navigate the transition and optimise your fleet management strategy considering the new tax environment.
4. Explore alternative incentives: Investigate other government incentives or benefits that might be available for electric or low-emission vehicles. Staying informed about evolving policies can help you make strategic decisions that align with your company’s sustainability goals and financial objectives.

By proactively addressing these considerations, you can better manage the transition and continue to support a sustainable and cost-effective fleet.

To maximise benefits, consider taking advantage of the current FBT exemption before the deadline.

Consult with our team of strategic advisors to understand how these changes might affect your fleet and to develop a customised plan for your business’ needs.