The Australian Government has been pushing for a more sustainable future, especially within the transport sector. To support their sustainability initiative, they have been offering Fringe Benefits Tax (FBT) exemptions on electric cars, which has made the investment of EVS more attractive to businesses to incorporate them into their fleets.
However, from 1 April 2025, plug-in hybrid electric vehicles (PHEVs) will no longer qualify as low-emission vehicles under Australian tax law. This decision marks a significant turning point for businesses relying on these vehicles to balance sustainability with cost efficiency. It also presents a new set of challenges and opportunities, especially for business owners who have built their fleet strategies around PHEVs.
In this blog, we’ll explore how these changes will affect small businesses, individuals, and fleet planning, while also offering strategies to help you stay ahead of the curve. Whether you’re a business managing a fleet or an individual enjoying the perks of a company car, it’s time to prepare for the changes and the next steps in Australia’s transition toward sustainable transport.
Making the Most of the Changes
With significant adjustments to taxation laws on the horizon, businesses and individuals must adapt quickly to minimise disruptions. For small businesses in particular, the upcoming changes to fringe benefits tax (FBT) regulations for plug-in hybrid electric vehicles (PHEVs) present both challenges and opportunities. Here’s a detailed look at how these changes will impact small businesses, their fleet strategies, and employees— along with steps to stay ahead.
How the Upcoming Changes Will Affect Small Businesses
Small businesses relying on company cars or commercial vehicles must prepare for the shift in FBT regulations starting from 1 April 2025. Currently, businesses benefit from FBT exemptions on electric vehicles, including PHEVs, as long as they meet emissions and cost criteria. This has allowed many organisations to embrace eco-friendly fleet options while enjoying significant cost savings.
However, from April 2025, PHEVs will no longer qualify as zero or low-emission vehicles under Australian tax law. This change means:
- Increased Costs: Small businesses providing PHEVs to employees will now need to pay FBT unless the vehicles were exempt before 1 April 2025 and a legally binding agreement exists to continue private use after this date.
- Restricted Options: Organisations will have fewer options for expanding their fleets with PHEVs due to the removal of exemptions, making fully electric or hydrogen fuel cell vehicles more attractive.
- Planning Pressures: Fleet managers must reevaluate agreements, leases, and potential vehicle replacements to ensure compliance while minimising costs.
For example, if a small business planned to lease additional PHEVs in 2025, it would now need to shift focus to fully electric alternatives to avoid FBT liabilities.
How Individuals Will Be Impacted
For employees who benefit from company cars, these changes could reshape their choices and financial responsibilities.
Loss of Fringe Benefits Tax Exemptions for PHEVs
Currently, employees using PHEVs provided by their employers enjoy a tax-free benefit, covering associated costs such as registration, insurance, and charging expenses. After April 2025, this exemption will no longer apply to new PHEVs, making fully electric vehicles a more tax-efficient choice.
Novated Leases May Lose Appeal for PHEVs
Employees financing PHEVs via novated lease arrangements will face higher costs unless agreements are made before the April 2025 cut-off. This could make leasing a fully electric vehicle the more economical option, compared with a PHEV or traditional Internal Combustion Engine vehicle (ICEV).
Impacts on Reportable Fringe Benefits
Although the private use of eligible EVs is exempt from FBT, it is still considered a reportable fringe benefit. This affects employees’ assessable income for government benefits, child support, or other income-tested obligations. With PHEVs losing their FBT exemption, individuals may find their taxable income affected.
Preparing for the Changes
Both businesses and employees can take steps to prepare for these shifts:
For Businesses
- Review Existing Fleet Agreements
Confirm all PHEV agreements are compliant with pre-2025 exemptions, ensuring legally binding commitments are in place for continued private use after 1 April 2025. - Transition to Fully Electric Vehicles
Fully electric cars and hydrogen fuel cell vehicles will remain FBT-exempt, making them a sustainable and tax-efficient choice for fleet expansion. - Consult Financial Experts
Work with tax professionals to explore alternative benefits, incentives, and long-term cost strategies.
For Employees
- Consider Long-Term Costs
Employees benefiting from a PHEV should explore options for transitioning to fully electric models to maintain tax savings if they voluntarily contribute to the cost of their vehicle (e.g., through after-tax salary deductions). In this case, their employer may request a more significant contribution to offset the tax. - Evaluate Novated Lease Viability
Assess whether novated leasing a fully electric vehicle offers better tax advantages over retaining a PHEV post-2025. - Stay Informed
Keep updated on your individual reporting obligations to ensure accurate financial planning.
The Australian Government’s commitment to a greener future is evident in its policy changes surrounding electric vehicles. While the upcoming changes to FBT exemptions for PHEVs may seem disruptive, they ultimately accelerate the transition towards fully electric transportation.
By embracing these changes and proactively adapting, businesses and individuals can not only comply with new regulations but also contribute to a more sustainable Australia.
If you feel overwhelmed with these changes or are unsure of the next steps to take, contact us today to receive personalised guidance and tailored solutions to navigate these changes.
