All you need to know about the FBT Exemption When Buying a Plug-in Hybrid Car (PHEV)

Posted 4 Nov

Back in December 2022, the government introduced temporary rules for plug-in hybrid electric vehicles (PHEVs), along with battery electric vehicles (BEVs) and hydrogen fuel cell vehicles. The good news is these vehicles can now enjoy a Fringe Benefits Tax (FBT) exemption, making them an attractive option for both employers and employees.

Before this change to the rules the only vehicles that could entertain an FBT exemption were trade force vehicles such as Utes and panel vans that were primarily used for business use. Not much scope right?!

However, to encourage businesses to invest in zero and low emission vehicles, the government introduced this temporary incentive which we consider a win win all round! This exemption will only be available for PHEVs until 31 March 2025, so you don’t have a long time left to jump on this opportunity!  For other vehicles, the government intends to complete a review into this exemption by mid-2027 to consider whether it will be extended further or not. 

In this blog, we’ll walk you through the key criteria for qualifying for the FBT exemption, the costs that can be included, how to handle electricity expenses for charging, what you need to know about charging stations, and some common pitfalls to avoid as a business owner.

Key Criteria for FBT Exemption

Timing is Everything: To qualify, your PHEV must be first held and used on or after 1 July 2022 through to 31 March 2025. This means it should be delivered and ready for use at some point between these two dates. If you’re buying a second-hand PHEV, it could still qualify if it meets the other criteria.

 Eligible Vehicle Types: The vehicle must be a car, which the government defines as a motor vehicle designed to carry less than 1 tonne and fewer than 9 passengers. While we’re focusing on PHEVs, it’s worth noting that BEVs and hydrogen fuel cell vehicles are also eligible for this exemption.

 Value Limits: The car's value must fall below the luxury car tax threshold for fuel efficient vehicles of:

• $84,916 for the 2023 financial year
• $89,332 for the 2024 financial year
• $91,387 for the 2025 financial year

Once a PHEV qualifies for the FBT exemption, employers can breathe easy knowing they won’t have to consider any Fringe Benefits Tax on the benefits provided to employees.

This extends not only to the value of the car itself but also the following ongoing running costs are exempt from FBT:

• Fuel (including electricity for charging)
• Registration
• Insurance
• Repairs and maintenance

FBT Implications of Charging Stations

1. Employer-Installed Charging Stations: If you decide to install a charging station at your business premises, great news! No FBT applies to the electricity used, as this is considered part of the normal car benefit.
2. Employee Charging Stations at Home: However, if you provide a charging station for employees’ home use, that doesn’t qualify for FBT exemption. It’s important to know this distinction as this cost would have to have FBT considered and paid on the supply of this to your employee.

Reporting Requirements

The FBT exemption is fantastic for both employers and employees, however, there are still reporting requirements in respect to this. Employers still need to track what the reportable fringe benefit is for the provision of the vehicle and this benefit will show up on the employee’s income statement under “reportable fringe benefits.”

Employees won’t pay income tax on it, but it’s important they are aware it will be included in other adjustable income calculations such as medicare levy thresholds and centrelink calculations.

Important Facts for Business Owners

While this FBT exemption is a great opportunity, here are some important facts to watch out for to ensure you qualify:

• FBT Exemption for Employers Only: Remember, only businesses providing electric cars to employees or their associates (such as family members) can access this exemption.
• No Benefit for Sole Traders or Partnerships: Sole traders or partnerships without employees can’t take advantage of this exemption.
• Trusts and Companies: Trusts or companies can only obtain the tax break if the car is provided as part of an employee's or director's job.
• Delivery Timing: If a PHEV was delivered before July 1, 2022, and there’s no evidence it was first used after that date, the exemption may not apply.
• Luxury Car Limit: If a PHEV exceeds the luxury car limit, it doesn’t qualify for the exemption.
• Direct Purchases by Employees: If an employee directly purchases or leases a PHEV and seeks reimbursement from the employer, it does not qualify for the exemption.
• Vehicle Classification: The vehicle must meet the definition of a car to be eligible for the exemption.

Need more help with understanding the FBT exemption for PHEV’s?

Navigating the FBT exemption for PHEVs can lead to some exciting benefits for your business! While there are a few associated costs that aren’t exempt, the potential for significant tax savings makes this an attractive option for businesses looking to reduce fuel expenses while enjoying the flexibility that PHEVs offer compared to fully electric vehicles.

Contact the team at Empire Accountants today! We’re here to help you maximise your business’s potential while ensuring you stay compliant with all tax regulations. Let’s drive towards a cleaner, greener future together!