This article is for tax managers, fleet managers, HR/reward teams, those preparing the FBT returns, and CFOs navigating the evolving landscape of Fringe Benefits Tax (FBT) and electric vehicles (EVs) in Australia.
In this article of our FBT series, we break down the latest FBT exemption rules for EVs, the critical plug-in hybrid (PHEV) transition deadline, and how novated leases and salary packaging interact with these provisions.
Our quick-reference eligibility table and a summary of common compliance errors will help you stay audit-ready and avoid costly mistakes.
Electric Vehicles FBT 2026: Exemption Rules Explained
The FBT exemption which applies for electric cars remains a major incentive for employers and employees to enter into arrangements for the provision of electric vehicles. To qualify for the exemption in the 2025–26 FBT year, the vehicle must meet all of the following conditions:
- Zero or low emissions vehicle:
– Battery electric vehicle (BEV).
– Hydrogen fuel cell electric vehicle.
– Plug-in hybrid electric vehicle (PHEV) – but only under specific conditions (see below). - Car: It is a car designed to carry a load of less than one tonne and fewer than 9 passengers.
- First held and used: On or after 1 July 2022.
- Employee use: Provided for private use by a current employee or their associates.
- Luxury Car Tax (LCT): LCT must never have been payable on the importation or sale of the car.
- Salary packaging: Benefits provided under a salary packaging arrangement are included in the exemption.
PHEV Transition Deadline: What’s Changing in 2026?
From 1 April 2025, plug-in hybrid electric vehicles (PHEVs) will generally no longer be considered zero or low emissions vehicles able to be considered for FBT exemption purposes. However, there is a grandfathering provision which can apply:
- If a PHEV was both held and used before 1 April 2025, and you have a financially binding commitment to continue providing the use, or availability for use, of the car for private purposes on and after 1 April 2025, then the exemption can continue to apply for that specific vehicle.
Quick-Reference Table: EV, PHEV, ICE FBT Eligibility (2025–26):
| Vehicle Type | FBT Exempt in 2025–26 | Key Conditions / Notes |
|---|---|---|
| Battery EV (BEV) | Yes | Must meet all eligibility criteria |
| Hydrogen Fuel Cell | Yes | Must meet all eligibility criteria |
| PHEV | Only if held/used before 1 Apr 2025 | Grandfathered vehicles only; new PHEVs excluded |
| Hybrid (Non-Plug-In) | No | Not eligible |
| Internal Combustion (ICE) | No | Not eligible |
Novated Leases, Salary Packaging and FBT
- Novated leases: The FBT exemption applies to eligible EVs provided under a novated lease arrangement, making salary packaging of EVs an attractive option for certain employees.
- Salary packaging: The exemption covers both direct employer-provided vehicles and those accessed via salary sacrifice arrangements.
- Reportable benefits: Importantly, even if the car benefit is exempt from FBT, the value of the benefit will still need to be reported as a reportable fringe benefit amount (RFBA) under the STP2 reporting regime where it exceeds relevant thresholds.
Common Employer Mistakes
1. Incorrectly interpreting the PHEV deadline: Applying the exemption to new PHEVs acquired after 1 April 2025.
2. Overlooking LCT status: Claiming the exemption for vehicles that have attracted Luxury Car Tax.
3. Incorrect vehicle classification: Confusing hybrid types or including motorcycles/scooters (which are not eligible).
4. Salary packaging errors: Failing to include salary-packaged EVs in exemption calculations or RFBA’s.
5. Record-keeping gaps: Inadequate documentation of first held/used dates or employee use.
What This Means for You
As electric vehicles FBT 2026 rules become more complex, employers should take proactive steps to reduce compliance risk:
Review your fleet: Audit all EVs and PHEVs for eligibility, especially those acquired near the transition date.
Update policies: Ensure salary packaging and novated lease arrangements reflect the latest FBT rules.
Educate your team: HR, payroll, and fleet managers should be briefed on the new eligibility criteria and deadlines.
Next Steps / Andersen Perspective
The FBT exemption for electric vehicles remains a valuable benefit for employees and employers, but compliance is increasingly complex. Andersen’s tax specialists can help you review your fleet, update your policies, and avoid common pitfalls. Contact us for tailored advice and download our full FBT 2026 guide.
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