Clarity urged on EV FBT transitional arrangements proposal

The National Tax and Accountants’ Association (NTAA) has lodged its submission into the consultation on the exposure draft Treasury Laws Amendment Bill 2026: Phased changes to the fringe benefit tax (FBT) electric car exemption (2026 bill) and the accompanying exposure draft explanatory memorandum.

The 2026 bill would amend the Fringe Benefits Tax Assessment Act 1986 to replace the FBT exemption for eligible electric cars in section 8A of the FBT Act with a reduced FBT concession, phased in over two years.

While the NTAA said it supports the decision to grandfather existing commitments, it flagged concerns over the scope and clarity of the proposed transitional arrangements.

Specifically, the NTAA said it is concerned that, as drafted, the transitional arrangements would not protect certain employees who in good faith committed to the acquisition of an eligible FBT-exempt electric car (via a novated lease) before these changes.

It also said the transitional arrangements are not clear, pointing to inconsistencies between the transitional rules in the 2026 bill and the description of these rules in the explanatory materials.

The first part of Item 11 in the exposure draft bill states that the amendments made by this part apply to benefits provided on or after 1 April 2027.

However, it then states that the amendments in part one do not apply to a car benefit provided by an employer in an FBT year if, broadly, a car benefit relating to the car is provided by that employer in that year in respect of employment of an employee for a period.

In addition, they do not apply if the last time the employer or the employee committed to the application or availability of the car for that period in respect of that employment was before 1 April 2027.

Item 13 takes the same approach for the second part but with reference to 1 April 2029.

In its submission, the NTAA said there is no transitional relief for change of employment as grandfathering depends on when the last commitment to the car was made in respect of the relevant employment.

“Therefore, the grandfathering measures will not apply where an employee leases an exempt electric car and novates the lease to their employer (the original employer) before 1 April 2027, and later commences employment with another employer (the new employer) on or after that date, transferring the novated lease to the new employer,” the submission said.

The NTAA continued that under the amendments, the relevant commitment date is the date the new employer agrees to take on the novated lease, and not the date the lease was originally entered into with the original employer.

“In these circumstances, because that agreement occurs on or after 1 April 2027, the new employer will not be eligible for the grandfathered exemption, regardless of when the original novated lease commenced,” the NTAA said.

“In other words, the earlier commitment by the original employer (made in respect of the previous employment) is not relevant. Grandfathering therefore ends from the day the new employer first provides the car to the employee under the novated lease.”

The submission flagged that in some cases, a change of employer could create “significant, unavoidable” costs for an employee where changing employment was not their choice. For example, the employee may change employers due to their previous employer closing its business, becoming insolvent, making the employee redundant, or from a merger or takeover under which employees are transferred to a different entity.

In such cases, the NTAA argued, the employee typically bears the increased FBT cost due to salary packaging adjustments “through no fault of their own”. On top of this, it said the employee cannot avoid their legal obligations under the lease without incurring often considerable lease break costs (regardless of whether the lease is novated to a new employer).

The exposure draft explanatory materials state that Section 8A of the FBTAA established the FBT exemption for eligible electric cars provided as car benefits by providing that a car benefit would be an exempt benefit when the eligibility criteria were met.

However, it said the amendments repeal section 8A and remove references to it elsewhere in the FBTAA to reflect the cessation of the FBT exemption for electric cars and its replacement with a concessional FBT treatment for electric cars.

The NTAA argued that this section was introduced to encourage greater take-up of electric cars by making them more affordable, while the exemption was made available under salary packaging arrangements.

“NTAA considers that, having induced such a decision, the government should not withdraw the

benefit because of an event the employee cannot control,” its submission said.

“This outcome is also inconsistent with the stated intention in the ED EM that existing commitments ‘are not disturbed by the amendments’.”

The NTAA recommended that items 11 and 13 be amended so that a change of employer is not treated as a new commitment where:

• The same car continues to be provided to the same employee (or associate)
• The car is provided under a novated lease that is novated to the new employer
• There is no change to the terms on which the car is provided (including the term of the lease, the lease payments and the residual value)

If these changes are not implemented, the NTAA recommended that, at a minimum, relief should apply where employees are forced to change employers due to business closure, insolvency, redundancy, the sale of a business, a merger or takeover, or a restructure or transfer of business within a group.