Interim Productivity Commission report – recommends ZLEV FBT exemption be ‘eliminated’

There is currently an exemption from FBT for car fringe benefits consisting of the provision of certain types of zero or low emission vehicles (‘ZLEV’).

Cars currently eligible for the FBT exemption are:

• plug-in hybrid electric (exemption ceased from 1 April 2025 subject to certain transitional rules)

• battery electric

• hydrogen fuel cell electric

The exemption commenced from 1 July 2022 subject to certain transitional rules.

Prior to the FBT ZLEV exemption legislation receiving Royal Assent two concessions were extracted from the Government by the Senate. One of which was that the operation of the exemption must be reviewed three years from commencement. The review would need to determine the effectiveness of the exemption in encouraging the uptake of ZLEVs. The review would also need to consider whether the exemption should continue and what type of vehicles should be covered.

The Productivity Commission’s interim report ‘Investing in cheaper, cleaner energy and the net zero transformation‘ (August 2025), when dealing with ZLEV vehicles (at draft recommendation 1.3), highlights several key points and recommendations:

• The Commission suggests phasing out existing incentives that overlap with new vehicle emissions standards. Specifically, it recommends scrapping the national FBT exemption for ZLEV vehicles, as well as state and territory incentives like stamp duty and registration discounts.
• These incentives currently subsidize ZLEV purchases, but the new New Vehicle Efficiency Standard (NVES), which came into effect on January 1, 2025, aims to promote low-emissions vehicles broadly, including ZLEVs and more fuel-efficient fossil fuel vehicles. The Commission sees the subsidies as overlapping and recommends removing them.
• The report also calls for new, technology-neutral emissions reduction incentives for heavy vehicles, including subsidies for zero- and low-emission trucks and support for technologies reducing emissions in existing diesel trucks. It mentions the need for infrastructure development like heavy vehicle charging and refuelling stations.
• The Productivity Commission argues that to achieve net zero at the least cost, Australia needs consistent and comprehensive incentives to reduce emissions that are neutral regarding technology and geography.

The Commission is seeking public comment on the interim report (until September 15, 2025) after which a final report will be prepared.

The prospect of the FBT exemption ending/being phased out will be of interest to those TaxEd members who have adopted/are considering ZLEV fleets or allow ZLEV salary packaging.

Government policy in this area will need to be closely monitored. TaxEd will provided further updates as they occur.

Not surprisingly, the interim report has received pushback from the Electric Vehicle Council and other industry bodies. They argue that removing incentives like the FBT exemption prematurely would slow EV adoption and be counterproductive to net zero goals, as incentives and the NVES work best as complementary policies.

A copy of the interim report can be found here.

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