Introduction to Fringe Benefits Tax (FBT) and EV Exemptions
How the EV FBT Exemption Works
Eligibility Criteria
Benefits for Employers
Benefits for Self-Employed Individuals and Small Business Owners
The Novated Lease Trap
Practical Steps to Take Advantage of the EV FBT Exemption
Case Study Examples
Common Misconceptions and FAQs
Conclusion and Future Outlook

Introduction to Fringe Benefits Tax (FBT) and EV Exemptions {#introduction}

Fringe Benefits Tax (FBT) is a tax employers pay on certain benefits provided to their employees (or associates of employees) in addition to, or as a part of, their salary package. Traditionally, if an employer provides an employee with a company car for private use, that benefit is subject to FBT. However, in recent years, the Australian Government has introduced specific exemptions and incentives to encourage the transition to cleaner, zero-emission vehicles.

For a broader overview of FBT and its implications for businesses, see our Tax Implications: Post-Holiday Business Insights and Mastering Entertainment FBT in Australia guides.

Why encourage electric vehicles?

There are multiple reasons the government aims to promote EVs:

They reduce carbon emissions
Help improve local air quality
Lower the nation's reliance on imported fuel
Often come with lower running costs for drivers

EV Exemption in a nutshell

Under legislation effective from 1 July 2022, electric vehicles that meet specific requirements can be exempt from FBT
This exemption can lead to significant tax savings for both employers and employees
Self-employed individuals and small business owners may also benefit, although their approach to claiming these benefits can differ

How the EV FBT Exemption Works {#how-it-works}

Historically, if an employer provided a car to an employee (or their associate) for private use, it would be subject to FBT. The amount of FBT payable depended on a range of factors, including the cost of the car and the proportion of private use. With the new EV exemption, eligible electric cars provided by an employer to an employee are not considered a taxable fringe benefit under certain conditions.

This means:

No FBT is payable for the private use of eligible EVs
Employers can offer EVs to employees as part of their remuneration package without triggering an additional FBT liability

Because FBT is normally a cost borne by the employer, an exemption can significantly reduce business expenses. Additionally, for the employee, receiving a car that would otherwise attract FBT can be highly beneficial—it's effectively a tax-free way of receiving a benefit (subject to meeting all legislative requirements).

Eligibility Criteria {#eligibility}

Vehicle Requirements

Must be a zero or low-emission vehicle: Generally, it should be either fully electric (battery electric), hydrogen fuel cell electric, or a plug-in hybrid electric vehicle (PHEV) if it meets specific conditions
Must be used primarily for road use: The exemption applies only to vehicles designed to carry a load of less than one tonne and fewer than nine passengers

Date of First Registration and Thresholds

First Registered on or after 1 July 2022: To be eligible for the exemption, the vehicle must have been first registered on or after 1 July 2022
Below the Luxury Car Tax (LCT) threshold for fuel-efficient cars: The vehicle's value must fall under the LCT threshold for fuel-efficient vehicles at the time of first retail sale

Benefits for Employers {#employer-benefits}

Reduced Tax Liability

The most immediate and noticeable benefit for employers is the reduction (or elimination) of FBT on eligible EVs. In standard situations, providing a car for an employee's private use incurs a significant tax burden. Under the exemption, employers can provide EVs without worrying about paying FBT. This can translate into thousands of dollars in annual savings per vehicle.

Encouraging Sustainable Company Fleet

Introducing electric vehicles into a company fleet offers multiple advantages beyond tax savings:

Lower Fuel and Maintenance Costs: EVs typically have lower running costs compared to internal combustion engine (ICE) vehicles
Green Branding: Demonstrating a commitment to sustainability can enhance a company's public image

Employee Attraction and Retention

By offering an EV as part of a remuneration package, employers can stand out in a competitive labour market. Many workers are interested in cleaner, more environmentally friendly car options but are deterred by the upfront costs or complexities of ownership.

Record-Keeping Requirements and Administrative Simplification

With a normal company-provided car, employers often need to keep detailed records such as odometer readings, logbooks, and details of private vs. business mileage to calculate FBT. Although there are still some documentation requirements for EVs, the FBT exemption can simplify the process because there is no taxable value to calculate for the private usage component.

Benefits for Self-Employed Individuals and Small Business Owners {#self-employed-benefits}

Claiming Deductions

A self-employed individual might use an electric vehicle for business purposes. Under normal circumstances, the person would:

Claim deductions for vehicle expenses (like depreciation, maintenance, and insurance)
Claim input tax credits for GST if they are registered for GST (subject to apportionment for private use)

GST Credits and Other Tax Offsets

If the EV is used in the course of running a business, the owner may be able to claim GST credits for the purchase and ongoing running costs. This depends on the proportion of business use versus private use.

Weighing Up Business vs. Personal Use

Self-employed individuals must be careful to distinguish between business and personal usage. If you use the car for both business and personal reasons, you can only claim deductions for the business portion.

The Novated Lease Trap {#novated-lease}

For more on novated leasing and salary packaging, see our Novated Leasing post.

Understanding Novated Leases

Three-Party Agreement: A novated lease is an agreement between an employee, an employer, and a finance company
Reduces Taxable Income: Because lease payments are often taken from pre-tax salary, the employee's taxable income is reduced
Residual Value: At the end of a novated lease, there's usually a residual value that the employee can pay to purchase the vehicle outright

Potential Pitfalls of Novated Leases

Over-Commitment: Some employees overestimate their capacity to make lease payments
Residual Value Risk: If the residual value at the end of the lease is higher than the market value of the car
Change of Employment: If the employee changes jobs, the novated lease arrangement typically ceases

How the EV FBT Exemption Interacts with Novated Leases

For eligible EVs, if the vehicle is provided under a novated lease, the FBT exemption could mean no FBT is payable by the employer. However:

Administration and Fees: Salary packaging companies may still charge administration fees
Market Adjustment of Fees: Some packaging providers or financiers might adjust their fees
Limited Models Meeting the Threshold: Not all EVs will meet the LCT threshold

Practical Steps to Take Advantage of the EV FBT Exemption {#practical-steps}

Assess Your Eligibility

Employers: Make sure the EV meets the requirements
Employees: Check if your employer offers salary packaging with EVs
Self-Employed: Verify vehicle costs fall under relevant thresholds

Calculate the Cost-Benefit of Upgrading to an EV

Consider:

Vehicle Cost vs. Tax Savings
Running Costs Over Lifecycle
Resale Value and Depreciation

Set Up Documentation and Reporting

Keep documentation related to the purchase (or lease)
Maintain records that demonstrate zero or low-emission status
Ensure payroll and accounting systems are updated correctly

Case Study Examples {#case-studies}

Case Study 1: Mid-Sized Company Offering EV Fleet

A medium-sized tech company replaces 10 traditional vehicles with eligible EVs, saving thousands in FBT while providing environmental benefits.

Case Study 2: Self-Employed Consultant

A self-employed IT consultant purchases a PHEV, benefiting from GST credits and state-based incentives while reducing operational costs.

Common Misconceptions and FAQs {#faqs}

"Any electric vehicle qualifies for FBT exemption."
- Not True. The vehicle must be under the LCT threshold and first registered after 1 July 2022
"Employees can't use an EV for private purposes if it's exempt."
- False. The exemption specifically applies to private use situations
"I'm self-employed, so FBT doesn't apply to me at all."
- Partially True. FBT generally only applies if you have employees
"With a novated lease on an EV, there are no costs to me."
- Misleading. You still face lease repayments and possible administrative fees
"EVs are too expensive to be worth it."
- Outdated. With incentives and lower running costs, many EVs are competitive

Conclusion and Future Outlook {#conclusion}

The FBT exemption for electric vehicles represents a significant step toward accelerating Australia's transition to cleaner transport. Key takeaways include:

Substantial Tax Savings for employers providing eligible EVs
Boost to Sustainability through reduced emissions
Important considerations for Novated Leases
Necessity to verify all conditions and incentives
Value of long-term planning for optimal outcomes

For more on FBT, salary packaging, and business tax, see our related posts below.

Electric Vehicle FBT Exemption Guide

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