Electric Car FBT Exemption Guide

Electric Car Discount Bill Approved

The Electric Car Discount Bill will become law following its approval in the Senate on Friday 25 November 2022. It will require a further reading in the House of Representatives before it receives royal assent (officially becomes law).

passage of a bill before it gets approved

The bill proposes the following government charges be removed for electric cars, effective from 1 July 2022:

  • Import tax on electric cars; and
  • Fringe Benefits Tax (FBT) on electric cars.

The FBT exemption is expected to have the most profound and direct impact on the affordability of electric cars in Australia. Below is everything you need to know about the FBT exemption for electric cars.

FBT Exemption for Electric Vehicles - Key Features

✅ Eligible cars that are zero or low emissions vehicles are exempt from Fringe Benefits Tax (FBT).

🚗 Zero or low emission vehicles include battery electric vehicles, hydrogen fuel cell electric vehicles; and plug-in hybrid electric vehicles. Petrol-hybrid vehicles (e.g. Toyota Camry Hybrid) without a plug are not eligible. Learn more about the differences here.

📅 Vehicles are to be first held or used after 1 July 2022. If you ordered before this date and receive delivery after, you will be eligible.

2️⃣ A second-hand electric car may qualify for the exemption, provided it was first purchased new on or after 1 July 2022.

◀ Car value (includes delivery fees, accessories and options) must be below the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles: <$84,916 for 2022/23.

📦 Applies to cars under salary packaging arrangements (including those procured under a novated lease).

⏳FBT exemption will be in place at least until 30 June 2025. It will be reviewed in 3 years.

🔌 Plug-in-hybrid vehicles to be phased out from 31 March 2025.

For further details on the bill refer to the explanatory memorandum.

What is Fringe Benefits Tax (FBT)?

Fringe benefits tax (FBT) is a tax that employers pay on benefits paid to an employee in addition to their salary or wages. Historically this included cars that are salary packaged via novated leases. FBT is calculated on the taxable value of the benefits you provide. This is separate to income tax.

With respect to salary-packaged cars, there is more often than not, a level of private use, which triggers an FBT obligation. According to the ATO, if a car is garaged at or near an employee’s home, it is taken to be available for the employee’s private use and is subject to FBT. FBT is effectively taxing the 'personal' benefit received from the use of the car outside of work purposes. You can read more about FBT works here.

Following the introduction of the Electric Car Discount Bill, electric cars that are salary packaged will be exempt from FBT. This means you get the full tax benefit from the deductions without the FBT obligation attached. The chart below compares the tax treatment for a Tesla Model 3 RWD under an FBT exempt novated lease and one where FBT is payable. In this example, the FBT payable effectively wipes out almost all the benefits of the tax offset.

Businesses - How Much Will You Save?

According to advice from the government “a model valued at about $50,000 is provided by an employer through this arrangement, our fringe benefits tax exemption would save the employer up to $9000 a year”. These estimates are broadly in line with our calculations (outlined below).

For additional information on EV incentives for businesses:

How Much Will You Save Under an Electric Car Novated Lease?

The government estimates that “for individuals using a salary sacrifice arrangement to pay for the same model, their saving would be up to $4700 a year.” These figures are broadly in line with our calculations (below).

Comparison across different purchase options

Based on a $50,000 vehicle and $150,000 salary, over 3 years, an FBT exempt EV on a novated lease will save c. $4,000 p.a. compared to a traditional novated lease. The main driver of this is the much higher "net tax benefit" due to the absence of FBT payable on the car. In this example, there is $10k (employee contribution) to $18k (statutory method) of FBT payable over three years in the absence of an FBT exemption - for eligible electric cars it will be NIL.

Read our guide on novated leases to learn more about how they work with electric cars.

Note: we are not privy to the assumptions used by the government’s modeling nor do we guarantee the accuracy of zecar’s estimates. These are for illustrative purposes only.

FBT Exempt Electric Vehicles List

Below we've listed the FBT exempt electric vehicles models, divided across:

  • battery electric vehicles; and
  • plug-in hybrid electric vehicles.

LEARN MORE ➡ Electric Car Incentives in Australia: State-by-State Guide

Battery electric vehicles (BEVs) eligible for the FBT exemption

Plug-in hybrid electric vehicles (PHEVs) eligible for the FBT exemption

FBT Exemption and State-based EV Rebates and Incentives

Vehicles procured under a novated lease should not preclude eligibility from state-based EV rebates and incentives, except in the following states:

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