EV FBT Exemption Australia: Rules, Eligible Vehicles & How It Works

The EV FBT exemption in Australia is one of the most significant tax incentives for employers considering electric vehicles. Since 1 July 2022, eligible zero and low emission vehicles provided by employers have been exempt from fringe benefits tax — but the rules around which vehicles qualify, the luxury threshold, and the treatment of plug-in hybrids are nuanced. This guide explains everything clearly.

What is the EV FBT exemption?

Fringe benefits tax (FBT) normally applies when an employer provides a car to an employee for private use. At the standard FBT rate of 47%, the tax cost of a company car can be substantial — often thousands of dollars per year.

The EV FBT exemption, introduced by the Australian Government, removes that FBT liability entirely for eligible electric vehicles. An employer can provide a qualifying EV through a company car arrangement or novated lease, and pay zero FBT on the car benefit.

This makes EVs significantly more attractive for salary packaging. Employees can access a new electric car with their pre-tax salary, reducing their taxable income with no FBT cost flowing back through the novated lease arrangement.

Which vehicles qualify?

To qualify for the exemption, a vehicle must be:

1. A car as defined under the FBT Act — designed to carry fewer than nine passengers, with a gross vehicle mass under one tonne
2. A zero or low emission vehicle — this means:
   • Battery electric vehicle (BEV)
   • Hydrogen fuel cell electric vehicle (FCEV)
   • Plug-in hybrid electric vehicle (PHEV) — see conditions below
3. The vehicle’s first retail sale must have occurred on or after 1 July 2022 (for BEVs/FCEVs) or 1 April 2025 (for PHEVs)
4. The vehicle must be under the Luxury Car Tax Value (LCTV) threshold for fuel-efficient vehicles at the time of first retail sale

Standard hybrid vehicles (self-charging, non-plug-in) do not qualify. They are not zero emission vehicles under the legislation.

The LCTV (Luxury Car Tax Value) threshold

To be eligible for the FBT exemption, the car’s value at its first retail sale must not exceed the luxury car tax threshold for fuel-efficient vehicles. For 2025-26, this threshold is $91,387 (indexed annually).

This threshold is based on the value at first retail sale — not the price the employer or employee pays. So a vehicle originally sold at retail for $88,000 may remain eligible even if the employer purchases it second-hand for less.

Vehicles with a first retail sale price above the threshold — for example, certain Tesla Model S and Model X variants, or luxury European EVs — do not qualify for the exemption.

Most mainstream EVs available in Australia in 2026 are priced under this threshold, including the Tesla Model 3, Tesla Model Y (standard variants), BYD Atto 3, BYD Seal, and MG4.

Plug-in hybrids: eligible from 1 April 2025?

This has been a frequently asked question since the exemption was introduced. PHEVs were originally excluded because they have a petrol engine and are not zero emission.

From 1 April 2025, PHEVs can qualify for the exemption provided:

• The vehicle’s first retail sale occurred on or after 1 April 2025
• The vehicle meets the LCTV threshold at the time of first retail sale
• The PHEV meets the definition of a “low emission vehicle” as applicable under the legislation at that time

PHEVs whose first retail sale occurred before 1 April 2025 remain ineligible. If you have a pre-April 2025 PHEV in a novated lease or company car arrangement, the standard FBT rules apply.

Check current ATO guidance or speak with your tax adviser to confirm whether a specific PHEV model qualifies, as the ATO periodically updates its guidance on eligible vehicle types.

Conditions your employer must meet

The exemption is available to the employer, not the employee directly. To claim it, your employer must:

1. Provide the car — through direct ownership, a company car arrangement, or a novated lease
2. Hold valid registration for the vehicle in the employer’s or a financing entity’s name
3. Apply the exemption in their FBT return — the employer must actively elect to use the exemption (it does not apply automatically)
4. Meet the first retail sale date requirement — the employer cannot “back-date” an older vehicle into the exemption

In a novated lease, the employee salary-packages the vehicle through their employer. The lease payments come from pre-tax salary, and because the employer provides the car as a fringe benefit, the FBT exemption eliminates the FBT that would normally flow through. This means employees effectively pay for the car with entirely pre-tax income — one of the most tax-efficient ways to acquire an EV in Australia.

Does the exemption affect employees’ reportable fringe benefits?

Yes — and this catches many employees by surprise.

Even though the employer pays zero FBT on an exempt EV, the benefit is still a reportable fringe benefit on the employee’s income statement. The grossed-up taxable value of the car benefit must be reported by the employer.

This means the benefit flows into the employee’s adjusted taxable income (ATI), which can affect:

• HECS-HELP repayment obligations
• Medicare levy surcharge threshold
• Family Tax Benefit eligibility
• Other means-tested government payments

For employees with significant HECS debt or who receive means-tested benefits, this is an important consideration before entering a novated lease arrangement. The car’s taxable value under the statutory formula is typically 20% of the vehicle’s cost — on a $75,000 EV, that could be $15,000 added to ATI.

See Reportable Fringe Benefits ATO for a detailed breakdown of how this affects your tax position.

How to document an FBT-exempt EV

Even though no FBT is payable, employers must maintain records to substantiate the exemption. Required documentation includes:

Vehicle details

• Make, model, and VIN of the vehicle
• Date of first retail sale (to confirm it occurred on or after the qualifying date)
• Purchase price at first retail sale (to confirm it was under the LCTV threshold)

Usage records The ATO requires employers to document that the vehicle qualifies as a car fringe benefit (i.e. it was made available for private use). In practice, most novated lease arrangements produce this documentation automatically.

Kilometre records Even with the FBT exemption, employers using the operating cost (logbook) method rather than the statutory formula need accurate logbook data to calculate the car’s taxable value before applying the exemption. For company cars with mixed use, the taxable value drives the reportable fringe benefits figure.

Employees who want to keep their ATI (and HECS repayments) as low as possible can reduce the reportable fringe benefit amount by maintaining a logbook showing a high business-use percentage. A higher business-use percentage reduces the taxable value of the car benefit — even under the exemption.

Tripbook makes it straightforward to build and maintain that logbook. Every trip is recorded automatically, categorised as business or personal, and available as a report your employer can use for FBT calculations.

For a broader look at EV tax deductions, see: Electric Vehicle Tax Deductions ATO

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Keep your EV logbook accurate and up to date. Download Tripbook to track every trip, establish your business-use percentage, and reduce your reportable fringe benefits amount.