The electric vehicle FBT exemption lets a business provide an eligible electric car for an employee’s private use without paying fringe benefits tax, which otherwise runs at 47%. To qualify the car must be a battery electric or hydrogen fuel cell vehicle, first held and used on or after 1 July 2022, and priced under the luxury car tax threshold for fuel-efficient vehicles ($91,661 for 2026-27).
Provide a car to yourself or a staff member the ordinary way and fringe benefits tax can add thousands to the cost every year. Do it with an eligible electric vehicle and that FBT can be nil. It is one of the few genuinely generous concessions left for business owners, but the eligibility rules are strict and one of them changed in April 2025. I am Mina Baselyous, a Chartered Tax Advisor (CTA) and CPA, and this guide covers exactly who qualifies, how to use the exemption, and the traps that catch people out.
What the electric vehicle FBT exemption is
Normally, when a business provides a car for an employee’s private use, that private use is a car fringe benefit and the employer pays fringe benefits tax on it at 47%. The electric car exemption removes that FBT entirely for eligible electric cars, including cars provided under a salary packaging or novated lease arrangement (ATO, electric cars exemption). For a business owner who was going to buy a car through the company anyway, that is a substantial saving, which is why the concession has driven so much interest.
Which vehicles qualify
To be exempt, the vehicle must meet every one of the ATO’s conditions. It must be a zero or low emissions vehicle, which since 1 April 2025 means only a battery electric vehicle or a hydrogen fuel cell vehicle. It must be a car designed to carry less than one tonne and fewer than nine passengers, so motorcycles and scooters do not qualify. It must be first held and used on or after 1 July 2022. And luxury car tax must never have been payable on it.
The plug-in hybrid change from 1 April 2025
This is the change that catches people. From 1 April 2025, a plug-in hybrid electric vehicle is no longer treated as a zero or low emissions vehicle and is not eligible for the exemption. There is limited grandfathering: you can keep applying the exemption to a PHEV only if it was used, or available for use, before 1 April 2025 and you have a financially binding commitment to continue providing that private use on and after that date. New PHEV arrangements from April 2025 do not qualify.
The luxury car tax threshold trap
The exemption only applies if luxury car tax has never been payable on the car, which in practice means its value must sit below the LCT threshold for fuel-efficient vehicles at the first retail sale and any later sale. That threshold is $91,387 for 2025-26 and $91,661 for 2026-27 (ATO, luxury car tax thresholds). Go a dollar over when the car is first sold and LCT applies, which permanently disqualifies the car from the FBT exemption, even for a later owner. Checking the price against the current threshold before you buy is essential.
Thinking about putting an electric car through your business?
At Pinnacle, we check the vehicle against every eligibility rule, structure the purchase or novated lease correctly, and make sure you capture the FBT saving without tripping the luxury car tax or reporting traps. Book a consultation with Mina before you sign anything.
Book a ConsultationHow business owners actually use it
There are two common ways owners access the exemption. The first is a company-owned or company-financed electric car provided for private use. The second is salary packaging or a novated lease, where an employee (which can include a working director) sacrifices salary to fund an eligible EV and the private use is FBT-exempt. Either way, the associated running costs are also exempt: registration, insurance, repairs and maintenance, and the cost of electricity or fuel to charge and run the car are all covered.
One nuance on charging. A home charging station is not treated as an exempt car expense, though it may be a separate property or expense payment fringe benefit. To value home charging electricity, the ATO allows a shortcut rate under PCG 2024/2 (5.47 cents per kilometre for the 2026-27 FBT year), provided you keep the records to support it. This is exactly the kind of detail we build into a client’s tax planning so the saving is captured cleanly.
The reportable fringe benefit catch
Exempt from FBT does not mean invisible. The private use of an eligible electric car is still a reportable fringe benefit, so you must work out its notional taxable value and, where the threshold is met, report it on the employee’s income statement. A reportable fringe benefits amount does not attract income tax directly, but it can affect income-tested measures such as the Medicare levy surcharge, private health rebate, family assistance and certain repayment obligations. In our experience this is the part owners most often forget.
In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the exemption is genuinely valuable, but it is not a free-for-all. Get the vehicle type wrong, cross the luxury car tax threshold, or ignore the reporting, and the saving unravels. Done properly, it is one of the cleanest ways to fund a car through a business right now.
Caveats and what is coming
The exemption is current, but the government has said it will complete a review of the electric car FBT exemption by mid-2027 to consider electric car take-up, so the settings could change for future purchases. That is a reason to act on a genuine need now rather than assume the concession will look the same indefinitely, and a reason to lock in eligibility correctly from day one. Keep evidence of the purchase price, the first held-and-used date, and your charging records. This sits alongside the wider fringe benefits tax rules every employer should understand, and our guide to minimising fringe benefits tax covers the other levers. If you also use vehicles in the business more broadly, see how to claim motor vehicle expenses.
Frequently Asked Questions
What is the electric vehicle FBT exemption?
It is a concession that removes fringe benefits tax on the private use of an eligible electric car provided by an employer, including under a novated lease. FBT normally applies at 47%, so the saving is significant. The car must be a battery electric or hydrogen fuel cell vehicle, first held and used from 1 July 2022, and under the luxury car tax threshold.
Do plug-in hybrids still qualify for the FBT exemption?
No, not for new arrangements. From 1 April 2025 a plug-in hybrid is no longer a zero or low emissions vehicle for FBT and does not qualify. Limited grandfathering applies only where the PHEV was used or available before 1 April 2025 and there is a financially binding commitment to continue the private use on and after that date.
Is there a price limit on the electric car?
Yes. The exemption applies only if luxury car tax has never been payable, which means the car’s value must be below the LCT threshold for fuel-efficient vehicles: $91,387 for 2025-26 and $91,661 for 2026-27. If the car exceeded the threshold when first sold, LCT applied and the car is permanently disqualified from the exemption, even for a later buyer.
Do I still have to report the electric car benefit?
Yes. Although the private use is exempt from FBT, it remains a reportable fringe benefit. You work out its notional taxable value and report it where the threshold is met. The reportable amount does not attract income tax directly but can affect income-tested measures such as the Medicare levy surcharge, the private health rebate and family assistance.
Can I salary package an electric car through my business?
Yes. Salary packaging or a novated lease is a common way to access the exemption, and a working director can use it too. The employee sacrifices salary to fund an eligible EV and the private use is FBT-exempt, along with running costs like registration, insurance, servicing and charging. Confirm eligibility and structure it correctly before you commit.
General Advice Disclaimer: The information in this article is general in nature and does not constitute personal financial, tax, or legal advice. It has been prepared without taking into account your personal objectives, financial situation, or needs. Before acting on anything in this article, consider its appropriateness to your circumstances and seek advice from a registered tax adviser or CPA. Liability limited by a scheme approved under Professional Standards Legislation.
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