Electric vehicles come with one of the most valuable tax concessions available to Australian businesses and their employees: an exemption from fringe benefits tax. Used through a novated lease or salary packaging arrangement, it can make an EV meaningfully cheaper in after-tax terms than an equivalent petrol car. The rules changed in 2025, and more changes are already scheduled, so it is worth understanding exactly how the concession works today.
The core benefit: no FBT on eligible electric cars
Since 1 July 2022, an employer generally does not pay fringe benefits tax on an eligible electric car provided for an employee’s private use, including where the car is provided under a novated lease or salary packaging arrangement. Because private use of a work car would normally attract FBT, removing it is what drives the saving. Just as importantly, the associated running costs, including registration, insurance, repairs and the electricity to charge the car, are also covered by the exemption.
Which vehicles qualify
To be an eligible electric car for the exemption, all of the following must be met:
- It is a battery electric vehicle or a hydrogen fuel cell electric vehicle. Plug-in hybrids no longer qualify for new arrangements (see below).
- It is a car designed to carry a load of less than one tonne and fewer than nine passengers. Motorcycles and scooters do not count, even if electric.
- It was first held and used on or after 1 July 2022.
- Its value is below the luxury car tax threshold for fuel-efficient vehicles ($91,387 for 2025-26), and luxury car tax has never been payable on it.
- It is made available to a current employee or their associate.
The plug-in hybrid change
This is the change that catches people out. From 1 April 2025, a plug-in hybrid electric vehicle is no longer treated as a zero or low emissions vehicle for the exemption, so new plug-in hybrid arrangements do not qualify. An existing plug-in hybrid can stay exempt only if both of these are true: it was used, or available for use, before 1 April 2025 and that use was exempt, and there was a financially binding commitment in place before 1 April 2025 to continue providing the car for private use. Delivery delays do not extend eligibility, and extending or refinancing the arrangement after that date creates a new commitment that breaks the exemption.
What is still taxable, and what is reportable
Two points are easy to miss:
- Home charging equipment. While charging costs are covered, the cost of a home charging station installed at the employee’s home is a separate benefit and remains taxable.
- Reportable fringe benefits. Even though the car benefit is exempt from FBT, its value still counts as a reportable fringe benefits amount for the employee, which can affect income-tested items such as the Medicare levy surcharge, study loan repayments and family assistance.
The ATO also publishes an electric vehicle home charging rate that employers can use to work out charging costs where required.
Changes ahead, so plan for them
The full exemption is not permanent. The current treatment continues until 31 March 2027, then steps down:
- From 1 April 2027 to 1 April 2029, electric cars costing $75,000 or less keep the full exemption, while those costing more than $75,000 but below the luxury car tax threshold receive a 25% FBT discount instead.
- From 1 April 2029, all eligible electric cars below the threshold receive the 25% discount, and the full exemption ends.
- The Government has indicated existing leases will not be affected by these changes.
If your business buys an EV outright
The FBT exemption is tied to cars provided to employees, typically through a novated lease. If instead your business buys and owns an EV, the vehicle is depreciated in the usual way, with the car limit capping both the GST credit ($6,334 for 2025-26) and the depreciation you can claim, and most EVs sit above the instant asset write-off threshold so are pooled rather than written off immediately. The standout concession remains the FBT exemption on employer-provided and novated-lease electric cars.
How MS Financial Services can help
Whether an electric car works better owned by your business or packaged through a novated lease depends on your structure and numbers. Our Tax & Compliance and Business Advisory teams can model the FBT position, confirm a vehicle qualifies, and keep the paperwork right for any future ATO review. To talk it through, get in touch with our team.
Frequently Asked Questions
Do I pay FBT on an electric car provided to an employee?
Generally no, if the car meets all the eligibility conditions, including being a battery electric or hydrogen fuel cell vehicle first used on or after 1 July 2022 and valued below the fuel-efficient luxury car tax threshold. The private use is then exempt from FBT.
Does the exemption cover running costs and charging?
Yes. Associated car expenses such as registration, insurance, repairs and the cost of charging are covered by the exemption. However, a home charging station installed at the employee’s home is a separate benefit and remains taxable.
Are plug-in hybrids still exempt?
Not for new arrangements. From 1 April 2025 plug-in hybrids no longer qualify. An existing plug-in hybrid can remain exempt only if it was used or available before that date and a binding commitment was in place before then and has not been replaced.
Is the FBT exemption permanent?
No. The full exemption continues until 31 March 2027, after which cars over $75,000 move to a 25% discount, and from 1 April 2029 all eligible EVs move to the 25% discount. Existing leases are not expected to be affected.
Does the exemption affect anything else on my income?
Yes. Although exempt from FBT, the benefit is a reportable fringe benefits amount, which can influence income-tested obligations such as the Medicare levy surcharge, study loan repayments and family assistance.