Electric Car Fringe Benefit Tax: What’s New in 2026

Current Rules at a glance

Employers do not pay Fringe Benefit Tax (FBT) on eligible electric cars and associated car expenses if:

• The car is a zero or low emissions vehicle (battery electric, hydrogen fuel cell, or plug-in hybrid electric vehicle).
• The first time the car is both held and used is on or after 1 July 2022.
• The car is used by a current employee or their associates.
• Luxury Car Tax (LCT) has never been payable on the car.
• Benefits provided under salary packaging arrangements are included in the exemption.

Associated car expenses such as registration, insurance, repairs, and charging costs are also exempt. However, home charging stations remain taxable fringe benefits.

Key Updates for FY2025 – 2026

1. Plug-in Hybrid Vehicles Sunset Clause

From 1 April 2025, plug-in hybrid electric vehicles (PHEVs) are no longer considered zero or low emissions vehicles under FBT law.
However, existing PHEVs can remain exempt only if BOTH of the following conditions are met:

• The PHEV was used or available for private use before 1 April 2025, and that use was exempt.
• There is a financially binding commitment made before 1 April 2025 to continue providing private use on and after this date.

Important: Delivery delays do not extend eligibility and extending or refinancing the agreement after 1 April 2025 creates a new commitment and does not extend the FBT exemption.

2. Luxury Car Tax Threshold Changes

From 1 July 2025, the definition of a fuel-efficient vehicle for LCT purposes tightened to 3.5 litres per 100 km (previously 7 litres). This change may impact eligibility for some vehicles.

3. Record-Keeping Flexibility

Employers now have the option to use existing corporate records instead of statutory declarations for certain fringe benefits, simplifying compliance.

4. Review of Exemption

The government will review the electric car exemption by mid-2027 to assess uptake and effectiveness.

Practical Tips for Employers

For Plug-in Hybrid Electric Vehicles:

• Key Dates: Ensure the PHEV was used or available before 1 April 2025 and there is a binding commitment covering the period after that date.
• Lease Agreements: Keep in mind, some alterations to pre-existing lease agreements on or after 1 April 2025 will result in the FBT exemption being lost.

For all Electric Vehicles:

• Check LCT Status: Confirm that LCT was never payable on the vehicle.
• Salary Packaging: Continue leveraging novated leasing arrangements to maximise employee benefits.
• Reporting: Even if exempt, the taxable value of the car benefit must be calculated for reportable fringe benefits purposes.

Why It Matters

This exemption not only reduces tax liabilities but also supports corporate sustainability goals.

• For employers: Lower tax liabilities and enhanced employee benefits.
• For employees: Access to sustainable transport options.
• For the environment: Accelerates Australia’s transition to cleaner vehicles.

Need further clarification?

We understand that tax is not for everyone, so Perks Tax Consulting Team are here to help you navigate the FBT exemption and maximise its value for your business.