FBT exemption for plug-in hybrid electric vehicles: the end is nigh so act now!

An exemption from FBT applies from 1 July 2022 for certain zero and low emission vehicles. Only motor vehicles that are ‘cars’ as defined for FBT purposes are eligible for the exemption and, specifically cars that meet the definition of:

• battery electric vehicles;
• hydrogen fuel cell electric vehicles; and
• plug-in hybrid electric vehicles.

Importantly, under laws enacted when the FBT exemption was introduced, the exemption for plug-in hybrid cars ends from 1 April 2025 subject to transitional rules.

Under transitional rules, the FBT exemption continues to apply if both the following requirements are met:

1. use of the plug-in hybrid electric vehicle was exempt before 1 April 2025; and
2. a financially binding commitment exists to continue providing private use of the vehicle on and after 1 April 2025. For this purpose, any optional extension of the agreement is not considered binding.

The ATO website provides the following example of the application of transitional rule:

Example: exemption applies to original agreement without extension

Simon enters into a novated lease with his employer and a finance company that entitles him to use a plug-in hybrid electric vehicle.

The lease begins on 1 April 2024 and is for 3 years, to 31 March 2027. There is an option to extend the lease for a further 2 years from 1 April 2027.

Simon’s private use of the vehicle is exempt from FBT up to 31 March 2027, because:

1. He starts using the vehicle before 1 April 2025 and the requirements of the electric car exemption are met.
2. There is a binding commitment to continue providing the vehicle until 31 March 2027.

However, the exemption will not apply after 31 March 2027, even if the option is taken to extend the lease for an additional 2 years. This is because, at the time the exemption for plug-in hybrid vehicles ends (just before 1 April 2025), the extension is conditional on it being exercised at a future time. Therefore the agreement at that time was not binding beyond 31 March 2027.

Given the pending end of the exemption for plug-in hybrid electric vehicles, employers may wish to direct affected staff to speak with their accountant or financial adviser in regard to the opportunity to refinance their current lease or consider acquiring a new vehicle by way of novated lease before 31 March 2025 so as to extend access to the exemption after this point in time.

At this point in time, TaxEd is unaware of any suggestion the exclusion of these vehicles from the exemption is likely to change so it appears the time to act is sooner rather than later.

Employers are also reminded that the Government has committed to a review of the initial 3 years operation of the FBT exemption for zero and low emission vehicles. The broad terms and timing of the review are legislated. The review must include consideration of:

 (a) whether the operation of some or all of the exemptions should continue; and

 (b) what types of motor vehicles should be covered.

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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.