Mar 3, 2025 Andrew Low

Plug-in hybrid cars: Unplugged

In its first budget after coming into office in 2022, the then newly elected Labor government introduced a Fringe Benefits Tax (FBT) exemption for eligible electric cars, to encourage the shift by consumers from fuel-powered to electric cars.

The exemption provided an FBT exemption for cars that that met the following conditions:

• The car is a zero or low emissions vehicle.
• Luxury car tax has never been payable on the importation or sale of the car.
• The car was first held and used on or after 1 July 2022; and
• The car is used by a current employee or their associates.

While the exemption is expected to remain in place until a review in 2027, from 1st April 2025, plug-in hybrid cars will no longer be considered a zero or low emissions vehicle under FBT law, and will not be eligible for the exemption.

That being said, you can continue to apply the exemption for plug-in hybrid cars if both of the following apply:

• The use of the plug-in hybrid electric vehicle was exempt before 1 April 2025; and
• You have a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025

To put it simply, if you have a pre-existing finance arrangement for an eligible plug-in car prior to 1 April 2025, the new changes should not affect you until the current commitment ceases.

However, the ATO has also stated that making changes to the current commitment would exclude the plug-in hybrid vehicle from the FBT exemption. Such changes to commitments would include:

• Options to extend – the FBT exemption will not apply from the time that the option to extend is taken as it was not pre-determined at the time the commitment was entered into.
• Breaks in Novation – a commitment will be broken if the novation between the employer and the financer ceases to exist, or is even put on hold.
• Changes to financial obligations – any changes (e.g. adding car accessories, providing for additional running costs) to the finance commitment will result in a cessation of the current commitment.
• Changes to employer – a re-novating to a new employer would result in a new commitment

Even a small error could result in an employer potentially losing a large tax benefit, so contact your RDL accountant and we can run through how the changes could affect you.