FBT exemption phase-out for plug in hybrids (PHEVs) effective from 1 April 2025

Despite lobbying efforts and an Independent Senator’s Bill proposing an extension to 2030, the current law stands firm. The Australian Taxation Office (ATO) has provided guidance on what constitutes a change in commitment, affecting novated leases, lease extensions, and pool cars. Employers must stay informed to ensure accurate FBT returns in 2026.

PHEVs are set to lose their FBT exemption as of 1 April 2025 – or are they?

There has been much lobbying to extend this cut off, and an Independent Senator’s Bill proposing to extend the exemption to 2030 is currently before the Senate. However, as the law currently stands, PHEVs will no longer be FBT exempt from 1 April 2025, unless a commitment to the application or availability of the car was made before that time, and no new such commitment made after that time. 

The ATO interprets this commitment to be a financially binding one that includes provision for private use. They have now released guidance on their website that includes a number of examples of a change in financially binding commitment, including:

• Taking up an optional extension to a lease.
• Breaks in novated leases, such as periods of unpaid leave where employees pay lease payments directly.
• Adding accessories to the car that are added into the lease and cause a change in the amount subject to finance.
• A novated lease being transferred to a new employer. 

The following are examples of where there is no change in commitment:

• Where the lease payment amounts change in relation to maintenance/running costs, as contemplated by the original fully maintained lease agreement.
• Where a vehicle under novated lease is written off and replaced by the insurance company, with the new vehicle being noted on the original contract and all other contract details remaining the same.

Pool cars available for use by multiple employees are not considered by the ATO to be provided under a financially binding commitment and would therefore lose their exemption from 1 April 2025. 

Some other examples not in the ATO guidance, where we consider there would be a change in commitment are:

• An employer owned car is allocated for the use of a particular employee who then leaves the organisation and the car is allocated for the use of another employee.
• A pool car is available for the use of multiple employees via a booking system and is then taken out of the pool and allocated for the use of one particular employee on an ongoing basis – so if this occurred prior to 1 April 2025, FBT exemption could continue until there was any change in that commitment.

Employers with PHEVs will need to be clear on what commitments have been, or are being, made prior to 1 April 2025, and then monitor for any changes after that date, to ensure the correct FBT treatment can be applied in their 2026 FBT returns. 

Employers should remember that Reportable Fringe Benefits Amounts need to be determined for these cars, including for periods they are exempt from FBT. This may mean two separate calculations for a car in the same FBT year, which may be particularly challenging where the operating cost method is being applied. 

If you have any scenarios you are not sure about, or questions about the ATO examples, please contact Elizabeth Lucas.

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