Did You know Employers Could Qualify For An FBT Exemption On Eligible Vehicles?
- Amanda Wren
- Mar 21
- 3 min read
Navigating the FBT Exemption for Electric Cars: What Employers Should Know
In an effort to promote sustainability and reduce carbon footprints, many businesses are considering offering employees electric vehicles (EVs) as part of their benefits package. Not only does this help the environment, but it also offers financial incentives through the Fringe Benefits Tax (FBT) exemption for eligible electric cars. However, it’s essential for employers to understand the rules around this exemption to ensure compliance and avoid any unexpected tax implications.
Eligibility for the FBT Exemption
Employers who provide their employees with eligible electric vehicles can qualify for an FBT exemption, provided the following criteria are met:
Zero or Low Emission Vehicle: The car must be a battery electric, hydrogen fuel cell, or plug-in hybrid electric vehicle.
First Held and Used After 1 July 2022: The vehicle must be first held and used on or after 1 July 2022.
Value Below the Luxury Car Tax Threshold: The car must be below the luxury car tax threshold for fuel-efficient vehicles. For the 2024-25 financial year, this threshold is set at $89,332.
As long as these conditions are met, employers can potentially enjoy the FBT exemption, reducing their overall tax liabilities.
Are You Eligible for the FBT Exemption?
Yes
No
Key Changes: Plug-in Hybrid Vehicles No Longer FBT Exempt
Starting 1 April 2025, there will be important changes to the FBT exemption for electric cars. Plug-in hybrid electric vehicles (PHEVs) will no longer qualify for the exemption unless:
The vehicle was already exempt before 1 April 2025, and
There is a financially binding commitment to continue providing the employee with private use of the vehicle on and after 1 April 2025.
If there is any break or change to that commitment after 1 April 2025, the exemption will no longer apply. Employers who currently provide plug-in hybrid vehicles to employees should begin preparing for these changes well in advance to avoid any disruptions.
Working with the FBT Exemption
Even if the FBT exemption applies, businesses must still calculate the taxable value of the benefit, as though the exemption didn’t exist. This is because the value of the exempt benefit is still factored into the reportable fringe benefits amount (RFBA) for the employee.
While the income tax isn’t paid on the exempt benefit, the RFBA can have an impact on the employee in several areas, such as:
Medicare levy surcharge
Private health insurance rebate
Employee share scheme reduction
Social security payments
Home Electricity Costs and Employee Contributions
One of the most practical aspects of working with the FBT exemption is determining how to handle the employee’s electricity costs incurred when charging the electric vehicle at home. These costs can generally be considered as employee contributions, which can reduce the value of the benefit.
While calculating these electricity costs can be challenging, the Australian Taxation Office (ATO) has issued a shortcut rate of 4.20 cents per kilometre to assist with the calculation. This rate can be applied as a simple way to estimate home charging costs. However, it’s important to note that this shortcut rate does not apply to plug-in hybrid vehicles.
Charging Stations and the FBT Exemption
Many electric vehicles come bundled with home charging stations, but employers should be aware that the FBT exemption does not extend to the charging stations provided at an employee’s home. If your business provides a charging station as part of the electric vehicle package, it will be subject to FBT.
The FBT exemption for electric cars is a great incentive for businesses looking to support sustainability efforts and offer more attractive employee benefits. However, it’s essential to understand the rules around this exemption, especially as the landscape changes for plug-in hybrid vehicles in 2025. Employers should also take care in calculating the taxable value of the benefit and consider employee contributions toward home electricity costs.
By staying informed and preparing for upcoming changes, employers can maximize the benefits of offering electric vehicles to employees while minimizing tax liabilities and maintaining compliance with the latest regulations.
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