Government to make major changes to FBT exemption for EVs

Accounting firm BDO has advised employees who are interested in using the fringe benefits tax exemption when salary packaging an electric vehicle (EV) to take action soon, with the government adjusting the settings of the electric car discount.

Significant changes to the FBT exemption for the private use of electric vehicles were first announced by the government on 5 May following the release of review by Treasury into the electric car discount.

While the government also confirmed these changes to the FBT exemption in the budget, there were slight differences between the measures contained in the budget and what had been announced previously, explained BDO.

The budget outlined for the two FBT years covering the period 1 April to 31 March 2029, the full FBT exemption will only be available for electric vehicles (EVs) costing up to $75,000, implemented through a 0 per cent rate in the FBT statutory formula.

Where the EV costs more than $75,000 and up to and including the luxury car tax (LCT) threshold, BDO said there will be a 25 per cent discount, implemented through a 15 per cent rate in the FBT statutory formula (rather than the standard statutory formula rate of 20 per cent).

"As a guide, the LCT threshold for fuel-efficient vehicles for the 2025-26 FBT year is $91,387," it said.

For EVs costing above the LCT threshold, full FBT will apply to their private use, with no discount or exemption available.

For FBT years commencing from 1 April 2029, BDO outlined that only the 25 per cent discount may apply, and the full FBT exemption will cease.

"Noting that only those EVs costing up to and including the LCT threshold will receive the 25 per cent discount, implemented through a 15 per cent rate in the FBT statutory formula, rather than the standard statutory formula rate of 20 per cent. All other EVs will be subject to full FBT," the accounting firm said.

Treasurer Jim Chalmers and the Climate Change and Energy Minister stated in their joint announcement that the changes would not impact existing EV arrangements.

BDO noted that in the original announcement on 5 May, the government stated that there would be no changes for the FBT year for the period 1 April 2026 to 31 March 2027.

"The budget papers state that all eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced," it said.

"It also states that the existing 20 per cent statutory rate will continue to apply to all other cars, including electric cars that cost more than the LCT."

The accounting firm said there is therefore some uncertainty in the way the budget papers are set out regarding new EVs acquired up to 31 March 2027.

"The better view of the interpretation of these budget papers is that no changes will apply for the 2026-27 FBT year, however, it would be prudent to await further details to confirm this treatment," it said.

BDO noted that the FBT exemption has already ceased for new plug-in hybrid electric vehicles (PHEVs) acquired from 1 April 2025.

"Further, the Government has limited the FBT exemption applying to PHEVs acquired before 1 April 2025, by requiring that a financially binding commitment exists to continue providing the vehicle for private purposes," it said.

"Therefore, the Government has already commenced limiting the application of the FBT exemption on electric vehicles by targeting PHEVs."

The accounting firm advised employees that they only have until the end of March 2027 to receive the full FBT exemption when salary packaging an EV.

"This is assuming that the Minister’s promise that existing EV leases will remain FBT-exempt will apply to all EVs from the date of the announcement up until 31 March 2027, after which the new measures apply, and not just to EVs up to 5 May 2026 when the announcement was made," it said.

"We also assume that the FBT exemption will not continue to apply to EVs costing more than the LCT threshold, but the wording of the budget papers is unclear."

Employees wishing to take advantage of these concessions would be wise to focus on lower-valued vehicles and act sooner rather than later, BDO advised.

It also noted that electric vehicles remain fully subject to the reportable fringe benefits provisions.

"That is, the grossed-up taxable value must still be reported on the employee’s PAYG income statements. It should also be noted that eligible EVs will remain exempt from import tariffs," it said.