Proposed transition to EV FBT changes ‘too harsh’

Chartered Accountants Australia and New Zealand (CA ANZ) has welcomed the government’s decision to transition away from the 100 per cent fringe benefit tax (FBT) exemption for eligible electric vehicles (EV) to a more “sustainable” concessional approach.

The government’s draft legislation, the Treasury Laws Amendment Bill 2026: Phased Changes to the FBT Electric Car Exemption, details how the FBT treatment of EVs will be slashed in three phases from 2027 to 2029 as part of measures announced in the budget.

The amendments have taken a phased approach to the FBT treatment of EVs provided by employers to current employees to support the transition from internal combustion engine vehicles to electric cars. The government said this would also make the concession “fairer and more fiscally sustainable”.

However, in its submission to Treasury, CA ANZ contended that the draft legislation and explanatory memorandum take an “overly legalistic approach” to when an existing commitment continues.

It expressed concerns that the draft materials suggest that transitional treatment may stop in circumstances such as a change in employer, a transfer within the same corporate group or between government departments, or the addition of accessories that increase lease payments.

CA ANZ noted that the application provisions in the exposure draft refer to “the last time at which the employer, the employee, or an associate of the employer or of the employee committed to the application or availability of the car”.

The exposure draft legislation limits the transitional provisions, it continued, by requiring “the benefit is provided in respect of the employment of a current employee”.

“It is not clear why this limitation is required,” the CA ANZ submission said.

Furthermore, the submission pointed out that the draft explanatory memorandum said that the term “commitment” is not a defined term in the FBT legislation.

It said it was particularly concerned about how the draft explanatory memorandum describes ceasing. It describes it as if:

• The car is refinanced
• The terms of the existing lease agreement change (for example, the lease term or residual value)
• Accessories are fitted to the car that results in lease payments being increased
• An employee changes employers even if the employers are within the same corporate group
• An employee transfers to another government department and ownership of the car remains the same

While CA ANZ said the first two points were appropriate, it took issue with changing an employer, and questioned whether this should be treated as resulting in a lease ceasing, particularly when that employer is in the same corporate or government group.

“It seems to be an overly legalistic approach to everyday situations where there is no tax avoidance and people are experiencing normal life events,” the submission said.

“Indeed, being transferred within the same corporate group or between government departments is usually an event outside of the taxpayer’s control. To remove an existing tax concession and raise revenue in those situations seems harsh. The general anti-avoidance provisions can apply where there is inappropriate behaviour.”

The submission recommends what it called a more practical transitional rule where employees who made financial commitments based on existing law should have confidence that those arrangements will be respected until the lease expires unless there is significant change such as refinancing, an extension of the lease term, or a change in residual value.

CA ANZ Australian leader, tax, superannuation, and financial services, Susan Franks, said entering into a leasing arrangement is a significant financial commitment which makes assumptions about the tax treatment of cars.

“In the 2026 budget the government recognised this and announced transitional provisions for those who have, or will, enter car leasing arrangements before 1 April 2029,” she said.

“Budget paper 2 stated that ‘all eligible electric vehicles will retain the FBT discount rate that was in place when the arrangement commenced’.”

“Employees who made financial commitments based on the policy settings available at the time should have confidence that those arrangements will be respected until the lease expires, provided there is no material change such as an extension of the lease term, change to residual value or refinancing of the arrangement.”