Electric Vehicles and the FBT Exemption – Five Common Mistakes Employers Make

The fringe benefits tax (FBT) exemption for eligible electric vehicles (EVs) has been available since 1 July 2022 and can provide significant savings for employers, particularly income tax-exempt organisations.

However, the exemption is only available where all legislative requirements are satisfied.

Here are five common mistakes employers should avoid.

Editors note – We will be providing more EV related articles when the changes announced in the 2026 Federal Budget (scheduled to come into effect on 1 April 2027) are introduced into Parliament. At present there remains some uncertainty as to exactly how the changes will work and in particular how transitional rules will apply.

1. Confusing the Luxury Car Tax (LCT)  threshold

Eligibility depends on whether the car was below the fuel-efficient vehicle LCT threshold applicable when it was first held and used.

Employers should remember that:

• the relevant threshold is determined when the vehicle was first sold;
• accessories added after purchase generally do not affect eligibility; and
• evidence of the vehicle’s original retail value should be retained.

A second-hand EV may therefore qualify if it satisfied the requirements when first sold.

2. Getting home charging reimbursements wrong

Reimbursement of an employee’s home charging costs represent a car expense benefit that is exempt from FBT due to the operation of section 53 of the FBT Act.

However, reimbursements should be calculated using a reasonable and supportable methodology, with appropriate records maintained. The ATO allows a prescribed cents-per-kilometre methodology in certain circumstances, subject to the relevant record-keeping requirements. The current ATO prescribed rate is contained in Practical Compliance Guideline PCG 2024/2 and is 5.47 c/km.

Simply reimbursing an employee’s household electricity bill or a part thre-of is unlikely to produce a reliable outcome.

3. Assuming workplace charging creates an FBT liability

Providing charging for an eligible EV at an employer’s premises will generally not create an additional FBT liability where the electricity forms part of the exempt car benefit.

Employers should nevertheless consider:

• whether the charging occurs at the employer’s business premises;
• whether the vehicle qualifies for the EV exemption; and
• whether charging is also provided to employees with non-exempt vehicles or vehicles privately owned by the employee.

4. Forgetting that only eligible vehicles qualify

Not every EV is exempt. Where the exemption does not apply, the normal FBT valuation rules continue to apply.

Assuming every electric vehicle is automatically exempt can result in unexpected FBT liabilities.

5. Relaxing record-keeping

The exemption removes the FBT liability for qualifying vehicles, but not the need for adequate records.

Employers should retain evidence supporting:

• the vehicle’s eligibility;
• when it was first held and used;
• lease or purchase arrangements;
• salary packaging arrangements;
• charging and reimbursement calculations; and
• employee contributions.

Good documentation can be particularly important if the ATO reviews an arrangement several years after the vehicle was provided.

Further, the provision of exempt EV vehicles still requires adherence to the reportable fringe benefits requirements and so appropriate record keeping is still required in order to calculate the relevant reportable fringe bents taxable value amount.

Key Takeaways

The EV FBT exemption remains a valuable concession, particularly for income tax-exempt employers using salary packaging arrangements.

However, employers should not assume that every EV qualifies or that all associated costs are automatically exempt. Eligibility, charging arrangements and record-keeping should be reviewed regularly.

A periodic review of salary-packaged EVs can identify compliance issues before they become costly during an ATO review.

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This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.