EV FBT Exemption Rules for Employers in Australia

If your business offers novated leases or salary packaging, understanding the electric vehicle (EV) fringe benefits tax (FBT) exemption is essential. This guide breaks down everything Australian employers need to know about EV FBT exemption rules, eligibility requirements, and practical obligations when offering EV novated leases to employees.

Whether you’re managing a single employee vehicle or a larger fleet, the FBT exemption can create significant tax savings for both your business and your team. With the right structure in place, you can offer a more attractive remuneration package while supporting Australia’s transition to cleaner transport.

Key Takeaways: EV FBT Exemption Rules for Employers in Australia

• The EV FBT exemption applies to battery electric vehicles (BEVs) and hydrogen fuel cell vehicles (FCEVs) first held and used on or after 1 July 2022.
• Luxury car tax must never have been payable on the vehicle for the exemption to apply to your novated lease arrangement.
• Plug-in hybrid electric vehicles (PHEVs) lost FBT exemption eligibility from 1 April 2025, except for grandfathered arrangements.
• Fingo simplifies FBT reporting for employers with timely fleet reports and expert guidance on salary packaging administration.
• Although FBT-exempt, the benefit must still be reported as a reportable fringe benefit amount on employee income statements.

What Is the EV FBT Exemption and How Does It Work?

The EV FBT exemption is a federal government incentive designed to encourage electric vehicle adoption in Australia. When your business provides an eligible electric car for an employee’s private use, you don’t need to pay fringe benefits tax on that benefit.

This applies whether you’re providing the vehicle directly as an employer or through a salary packaging arrangement like a novated lease. The exemption covers both the private use of the vehicle and associated running costs, including electricity for charging.

The FBT savings can be substantial. For employees, this translates to lower overall vehicle costs because the entire lease payment can be made from pre-tax salary without triggering an FBT liability for the employer.

Which Electric Vehicles Qualify for the FBT Exemption?

To qualify for the exemption, a vehicle must meet all of the following criteria set by the Australian Taxation Office (ATO):

• The car must be a zero or low emissions vehicle, specifically a battery electric vehicle (BEV) or hydrogen fuel cell electric vehicle
• The first time the car is both held and used must be on or after 1 July 2022
• The car must be used by a current employee or their associates
• Luxury car tax (LCT) has never been payable on the importation or sale of the car

The vehicle must be designed to carry a load of less than one tonne and fewer than nine passengers, including the driver. Electric motorcycles and scooters don’t qualify, even if they’re fully electric.

Understanding the Luxury Car Tax Threshold

For an EV to remain FBT-exempt, its value must stay below the LCT threshold for fuel-efficient vehicles at the time of first retail sale and in any subsequent sale. If you’re purchasing a second-hand electric vehicle, you’ll need to verify that LCT was never payable at any point in the car’s ownership history.

This is particularly important when employees source their own vehicles through novated lease arrangements. Proper documentation and vehicle history checks help confirm eligibility.

What Changed for Plug-In Hybrid Electric Vehicles in 2025?

From 1 April 2025, plug-in hybrid electric vehicles (PHEVs) are no longer considered zero or low emissions vehicles under FBT law. This means new PHEVs don’t qualify for the electric car exemption.

However, a grandfathering provision exists for existing arrangements. The exemption can continue if both of these conditions are met:

• There was a financially binding commitment before 1 April 2025 to continue providing the vehicle for private use
• The PHEV was exempt before 1 April 2025

For employers with existing PHEV salary packaging arrangements, this means those vehicles can continue under the exemption until the current commitment ends or changes. Any modification to the arrangement after 1 April 2025 will terminate the exemption.

Employer Obligations When Offering FBT-Exempt EVs

While the FBT exemption removes the tax liability, employers still have important compliance obligations. Understanding these requirements helps you avoid common mistakes that could create audit issues down the track.

Reportable Fringe Benefits Requirements

Even though no FBT is payable, the private use of an eligible electric car is still a reportable fringe benefit. You’ll need to calculate the notional taxable value of the benefit and report it on employee payment summaries under Single Touch Payroll Phase 2 (STP2) when it exceeds relevant thresholds.

This affects the employee’s adjusted taxable income, which can impact things like government benefits, HECS-HELP repayments, and Medicare levy surcharge thresholds. Making this clear to employees upfront helps them understand the full picture.

Record-Keeping for FBT Returns

Accurate records are essential for FBT compliance. As an employer, you should maintain documentation including:

• Vehicle delivery dates and lease commencement dates
• Opening and closing odometer readings for each FBT year
• The FBT base value of each vehicle
• Evidence confirming the vehicle was first held and used on or after 1 July 2022
• Documentation showing LCT was never payable

Fingo simplifies this process for employers by providing timely fleet reports containing all the information needed for FBT return preparation. These reports are delivered by 21 April each year.

How Does the EV FBT Exemption Work with Novated Leases?

The FBT exemption applies to eligible EVs provided under novated lease arrangements, making salary packaging of electric vehicles particularly attractive for employees. Under a novated lease for an eligible EV, the entire cost of the vehicle and running expenses can be paid from pre-tax salary.

This creates significant savings compared to acquiring a non-electric vehicle or purchasing the same car through other financing methods. Employees benefit from reduced taxable income, while employers face no FBT liability on qualifying arrangements.

Employer Benefits of EV Novated Leasing

For employers, offering EV novated leases creates advantages beyond just avoiding FBT. You can enhance your employee value proposition without increasing payroll costs. Since the employee pays all vehicle costs through salary sacrifice, there’s no residual risk or surplus vehicle concerns if an employee leaves.

Fingo handles all the administrative complexity, from negotiating vehicle prices using fleet buying power to managing salary packaging compliance. This lets you focus on running your business while still offering an attractive benefit to your team.

What Expenses Does the EV FBT Exemption Cover?

The exemption extends beyond just the vehicle itself. Associated car expenses are also FBT-exempt when provided for an eligible electric car:

• Registration
• Insurance
• Repairs and maintenance
• Fuel costs, including electricity for charging

This makes bundling all running costs into a single novated lease payment even more attractive. Employees enjoy simplified budgeting with one monthly payment covering everything vehicle-related.

How to Calculate Electricity Costs for Home Charging

Determining the cost of electricity when an employee charges their EV at home can be tricky since it’s combined with household electricity consumption. The ATO has addressed this by introducing the EV home charging rate.

Employers can use this shortcut rate (currently 5.47 cents per kilometre for the 2026-27 FBT year) when calculating electricity costs for FBT purposes. This applies when determining recipient contributions and operating costs. The alternative is calculating actual electricity costs, which requires more detailed record-keeping.

Home Charging Stations and FBT

One important distinction: home charging stations aren’t considered associated car expenses for FBT purposes. If you’re providing or reimbursing an employee for a home charger installation, this may be treated as a property fringe benefit or expense payment fringe benefit.

However, the otherwise deductible rule may apply to reduce the FBT liability if the charging station would have been a work-related deduction for the employee. Consult with your tax advisor on specific circumstances.

Understanding the ‘First Held and Used’ Requirement

The timing of when an electric car is first both held and used is critical for exemption eligibility. The car must be first used on or after 1 July 2022 for the exemption to apply, even if it was held before this date.

A car is considered ‘held’ when it’s owned, leased, or otherwise made available. It’s ‘used’ when it’s actually being used or available for use by any person. Both conditions must occur on or after 1 July 2022 for the exemption to apply to that vehicle throughout its lifetime.

This has practical implications for second-hand EV purchases. If an electric car was first used before 1 July 2022 by any owner, the exemption won’t apply to subsequent owners either.

Common FBT Mistakes Employers Make with Electric Vehicles

Based on ATO guidance and industry experience, several common errors trip up employers when claiming the EV FBT exemption:

• Incorrectly applying the PHEV deadline: Claiming the exemption for new plug-in hybrids acquired after 1 April 2025
• Overlooking LCT status: Not verifying whether luxury car tax was payable at any point in the vehicle’s history
• Incorrect vehicle classification: Confusing different hybrid types or assuming electric motorcycles and scooters qualify
• Salary packaging errors: Failing to include salary-packaged EVs in exemption calculations or RFBA reporting
• Record-keeping gaps: Inadequate documentation of first held and used dates or employee use

Working with an experienced novated lease provider helps you avoid these pitfalls. Fingo stays current on FBT regulations and guides both employers and employees through compliant arrangements.

How to Set Up an EV Salary Packaging Program for Your Employees

If you’re considering offering EV novated leases to your team, here’s a practical framework for getting started:

Step 1: Review Your Existing Salary Packaging Policy

Check whether your current remuneration policies already allow for novated leasing. If not, you’ll need to update employment agreements and payroll procedures to accommodate salary sacrifice arrangements.

Step 2: Partner with a Novated Lease Provider

Selecting the right provider simplifies administration significantly. Look for a provider that handles vehicle sourcing, documentation, compliance, and ongoing management. This takes the burden off your HR and payroll teams.

Step 3: Communicate the Benefit to Employees

Many employees don’t realise how much they can save through an FBT-exempt EV novated lease. Clear communication about eligibility, savings potential, and the application process increases uptake.

Step 4: Establish Reporting and Compliance Processes

Ensure your payroll system can handle the salary sacrifice deductions and that you have processes for accurate FBT and STP2 reporting. Your novated lease provider should supply the data you need for annual FBT returns.

EV FBT Eligibility Quick Reference Table

What’s Next for the EV FBT Exemption?

As announced in the recent May Budget, the EV FBT exemption is set to transition through several phases over the coming years.

Phase 1 – Until 31 March 2027: The current 100% FBT exemption remains in place for eligible electric vehicles priced below the applicable Luxury Car Tax (LCT) threshold.

Phase 2 – 1 April 2027 to 31 March 2029: The 100% FBT exemption will continue for eligible electric vehicles priced at $75,000 or less. Vehicles priced above $75,000 and up to the applicable LCT threshold will instead receive a 25% FBT discount, applying a 15% statutory formula rate.

Phase 3 – From 1 April 2029: The 100% FBT exemption will cease, with eligible electric vehicles below the applicable LCT threshold receiving a uniform 25% FBT discount.

For employers considering an EV salary packaging program, the current settings present a valuable opportunity. Establishing a program now can provide employees with access to meaningful tax benefits while the full exemption remains available, helping strengthen your overall employee benefits offering and support talent attraction and retention.

Fingo monitors changes to FBT rules and tax incentives and keeps clients informed of any updates that affect their arrangements. This proactive approach helps you stay compliant and maximise benefits for your team.

In Conclusion: Making EV FBT Exemption Work for Your Business

The EV FBT exemption represents a genuine opportunity for Australian employers to offer meaningful benefits to employees while supporting the shift to cleaner transport. By understanding eligibility requirements, meeting your compliance obligations, and partnering with the right novated lease provider, you can create a program that works for everyone.

Fingo specialises in helping employers set up and manage EV novated leases with transparent pricing and dedicated support. From negotiating vehicle prices to handling all FBT reporting requirements, Fingo takes the complexity out of salary packaging electric vehicles.