Explainer
The electric car FBT exemption and the plug-in hybrid cut-off
The electric car FBT exemption requires four conditions to be met cumulatively, and the one that catches people is that luxury car tax must never have been payable on the car — at any time, by any party in the chain of ownership. Since 1 April 2025 a plug-in hybrid is no longer a zero or low emissions vehicle for this purpose, and the transitional rule that preserves the exemption is narrow: an option to extend a lease is not a binding commitment, and renegotiating ends the exemption from the date of the change.
Four conditions, all required
The exemption under section 8A of the FBT Act applies only where all four of these are satisfied:
- The car is a zero or low emissions vehicle
- The car was first held and first used on or after 1 July 2022
- It is used by a current employee or their associates
- Luxury car tax has never been payable on the importation or sale of the car
The luxury car tax condition is the trap
The fourth condition is not 'LCT was not payable when your client bought it'. It is that LCT has never been payable at any time, by any party in the chain of ownership. A used EV that exceeded the threshold when it was first sold new is permanently disqualified, even if the client acquires it years later at well under the threshold.
The luxury car tax threshold for fuel-efficient vehicles is $91,387 for 2025-26 and $91,661 for 2026-27. (The threshold for other vehicles in 2026-27 is $80,809.) A vehicle is fuel-efficient for this purpose where combined fuel consumption does not exceed 3.5 litres per 100 km.
What else comes with the exemption
Associated benefits are also exempt: registration, insurance (both compulsory third party and comprehensive), repairs and maintenance, and fuel or electricity.
The installation of a home charging station is not covered, unless it is built into the novated lease. That distinction catches employers who assume the whole package is exempt.
For home charging costs, PCG 2024/2 provides a shortcut rate: 4.20 cents per kilometre for FBT years up to 31 March 2026, rising to 5.47 cents per kilometre from 1 April 2026 — that is, the current FBT year. Odometer records are required. Plug-in hybrids cannot use the flat rate; a separate step-by-step methodology applies because they draw on both petrol and electricity.
The plug-in hybrid cut-off, stated precisely
From 1 April 2025, a plug-in hybrid electric vehicle is no longer a zero or low emissions vehicle for the purposes of the electric car exemption.
The transitional rule preserves the exemption only where both of the following are true: the use, or availability for use, of the PHEV was exempt before 1 April 2025; and there was a financially binding commitment in place before 1 April 2025 to continue providing the use or availability of the car for private purposes on and after that date.
Three qualifications that decide most cases
The detail of the transitional rule is where the answers actually come from:
- An option to extend the agreement that is exercisable on or after 1 April 2025 is not a binding commitment. An optional extension does not preserve the exemption.
- If the pre-existing commitment changes on or after 1 April 2025, the exemption ceases from the date of the new commitment. A renegotiated or refinanced PHEV lease loses it from the date of change.
- If the commitment ends, the exemption applies up to and including the date it finishes.
Exempt does not mean invisible
An important trap for advisers: an exempt electric car still generates a reportable fringe benefits amount. The value is included in the employee's RFBA calculation even though the benefit itself is FBT-exempt.
The employee does not pay income tax on the reportable amount, but it is used in income tests by Services Australia and others — including for Division 293, HELP repayments, family assistance and child support. An employee who packages an EV can find their family assistance affected despite no FBT being payable.
Battery electric and hydrogen fuel cell vehicles are unaffected by the plug-in hybrid change.
This article is general information for registered practitioners. Confirm current thresholds and the client's specific arrangements before advising.
Authoritative sources
This article is general information for registered practitioners, not personal tax advice. Advisory Stack is a technology platform used by registered tax agents; the registered practitioner remains the adviser of record and is responsible for verifying any output before relying on it.
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