The existing full FBT exemption for eligible electric vehicles (EVs) is set to be reduced, with the timing of the relevant arrangement and the value of the vehicle determining how much of the concession remains available.

Draft legislation proposes a staged transition to a permanent 25% FBT discount, with changes to take place from 1 April 2027 and 1 April 2029. Although the changes are not yet law, businesses and employees considering an arrangement involving an EV should understand how the proposed rules could affect their costs.

What is changing

Currently, eligible battery electric and hydrogen fuel-cell vehicles can qualify for a full FBT exemption when provided to employees for private use, provided certain conditions are met. Plug-in hybrid vehicles generally no longer qualify for new arrangements from 1 April 2025, although certain existing arrangements are protected.

Under the proposed changes, the transition would operate as follows:

• Until 31 March 2027: The existing full FBT exemption continues for eligible EVs, regardless of the cost of the vehicle.
• From 1 April 2027 to 31 March 2029: Eligible EVs valued at $75,000 or less can retain the full exemption if the commitment to provide the vehicle is made before 1 April 2029. Vehicles valued above $75,000, but within the fuel-efficient luxury car tax threshold, would receive a 25% FBT discount.
• From 1 April 2029: All eligible EVs within the relevant luxury car tax threshold would receive a 25% FBT discount, rather than a full exemption, for new commitments.

Existing arrangements are generally protected, subject to some transitional rules. However, changes to an arrangement may create a new commitment and affect its FBT treatment.

Why the timing matters

The proposed changes could affect the cost of providing a company vehicle or entering into a salary packaging arrangement, including a novated lease.

For example, an employee considering an eligible EV valued at $70,000 could potentially retain the full FBT exemption by entering into a qualifying commitment before 1 April 2029. By contrast, an eligible EV valued at $85,000 would generally move to the 25% discount for commitments made from 1 April 2027.

From April 2029, the full exemption would no longer be available for new commitments, regardless of whether the eligible vehicle is valued above or below $75,000.

Importantly, the $75,000 threshold is based on the vehicle's relevant value for FBT purposes, not necessarily its advertised drive-away price. Buyers should confirm the applicable value before making a decision.

The date a vehicle is ordered or delivered may not, by itself, determine the outcome. The proposed rules focus on when a financially binding commitment to provide the vehicle is made. Changes to existing arrangements, including certain refinancing or employment changes, may also affect the concession.

What should businesses and employees do?

If you are considering an EV through your business or salary packaging, there are several practical steps to take:

1. Review your options early. If you are planning to purchase an EV or enter into a novated lease, consider how the proposed changes could affect the timing and overall cost.
2. Check the vehicle's value. Confirm whether it falls at or below $75,000 and whether it meets the relevant luxury car tax threshold.
3. Confirm the commitment date. Speak with your employer or salary packaging provider to understand when the arrangement becomes binding and whether any proposed changes could affect its treatment.
4. Compare the total cost. Consider the purchase price, lease payments, running costs and potential tax savings rather than choosing a vehicle based on the FBT concession alone.
5. Consider other tax implications. An FBT-exempt vehicle may still give rise to a reportable fringe benefits amount, which can affect certain income-tested obligations and entitlements.

Plan before committing

The proposed changes are intended to maintain support for EVs while gradually narrowing the scope of the full FBT exemption. For businesses and employees, the key consideration is how the vehicle's value and the timing of the arrangement affect the available concession.

If you are considering an EV purchase or salary packaging arrangement and want to confirm how the proposed changes could impact on the tax position, feel free to contact us. Reviewing the options now can help you understand the likely after-tax cost and make a decision that suits your financial and business circumstances.