EV Tax Break Is Changing – What You Need to Know

The generous Fringe Benefits Tax (FBT) exemption for electric vehicles is set to change, with the Government releasing draft legislation that will progressively wind back the concession.

For business owners and employees considering an electric vehicle, the timing and value of the vehicle will become increasingly important.

What is the current concession?

Under the current rules, an eligible electric vehicle can generally be provided to an employee without paying FBT, provided the vehicle satisfies the relevant requirements.

This can produce significant tax savings.

For example, an employee may be able to salary package the cost of an eligible EV, including lease payments and certain running costs, using pre-tax salary.

For business owners operating through a company, the exemption can also make an eligible EV significantly more tax-effective than an equivalent petrol or diesel vehicle where there is substantial private use.

What is changing?

The Government has released draft legislation that would progressively replace the full FBT exemption with a permanent 25% FBT discount.

The proposed changes would occur in two stages.

From 1 April 2027, eligible EVs valued at more than $75,000 would move from the full FBT exemption to the new 25% FBT discount.

Eligible EVs valued at $75,000 or less would continue to qualify for the full exemption where the commitment to provide the vehicle is made before 1 April 2029.

From 1 April 2029, the full exemption would cease for new arrangements and the 25% FBT discount would become the ongoing concession for eligible EVs.

This means the current full exemption is not disappearing overnight, but it is becoming more targeted.

Why does this matter?

For anyone considering a higher-value EV, 1 April 2027 is now an important date.

Under the proposed rules, an eligible EV above $75,000 could receive considerably more favourable FBT treatment where the relevant commitment is made before the new rules commence.

For vehicles of $75,000 or less, there is a longer window, with the existing full exemption potentially remaining available for arrangements entered into before 1 April 2029.

The difference can be significant because FBT on a vehicle with substantial private use can otherwise represent a considerable annual cost.

What about an existing EV?

The proposed changes contain transitional rules designed to protect certain existing arrangements.

This means someone who has already entered into an eligible arrangement should not automatically assume that their existing FBT exemption will disappear on 1 April 2027.

However, changes to an existing arrangement, including replacing a vehicle or entering into a new commitment, may need to be considered carefully.

Do the normal EV requirements still apply?

Yes.

The vehicle still needs to satisfy the eligibility requirements for the electric car concession.

It is also important to remember that although an eligible vehicle may be exempt from FBT, the benefit can still be a reportable fringe benefit for the employee.

This can affect matters such as HELP repayments and other income-tested obligations and entitlements.

Should you buy an EV before the rules change?

Tax should never be the sole reason for purchasing a vehicle.

However, if you or your business are already considering an electric vehicle, particularly one valued above $75,000, the proposed changes make the timing of the purchase or salary packaging arrangement more important.

The legislation is currently still in draft form, so the final rules may change before becoming law.

If you are considering purchasing or salary packaging an EV, please contact our office before entering into an arrangement. We can help you understand the tax implications and how the proposed changes may affect you.