The Government’s EV discount on PHEVs expires March 31 2025.

Why will the PHEV FBT exemption stop from 1 April 2025?

The Australian Taxation Office (ATO) has released advice that from 1 April 2025 plug-in electric hybrids vehicles (PHEVs) will no longer be classified as zero or low emissions vehicles under FBT law. This means that the FBT exemption will not apply to new PHEV leases entered into from 1 April 2025.

PHEVs leased before 1 April 2025 will remain eligible for the FBT exemption if the following two requirements are met:

1. Use of the PHEV was already exempt from FBT before 1 April 2025; and
2. There is a financially binding commitment to continue providing private use of the vehicle to an employee or their associate on or after 1 April 2025.

What does a “financially binding commitment” mean?

A financially binding commitment needs to be in place by 1 April 2025 for the exemption to apply.

This means that:

1. a customer / employee has ordered and received a car by way of a novated lease arrangement, and
2. there is a financial penalty if the order is cancelled.

In practice, this means that the vehicle has been delivered and available for use and a signed lease agreement is in place – prior to 1 April 2025.

Will the FBT exemption continue to apply for existing PHEV leases?

All existing PHEV leases will be honoured provided there are no breaks in the commitment to the use of the PHEV, such as change in employment or unpaid leave. More information on “breaks” below.

What happens if I change employer? Will the exemption apply if I carry the lease over to my new employer?

If a customer moves employer, the change of employer will trigger a new commitment and a loss of the FBT exemption. This is because the ATO view a change of employer as a new commitment to the availability of the car by the new employer. This applies to a change of a new employer even within the same group of companies.

What happens if I go on leave such as unpaid leave? Will I still be eligible for the exemption under my existing lease?

If an employee on leave does not use the PHEV during their absence, this can interrupt the existing agreement, potentially affecting the FBT exemption.

• Note that if an employee goes on unpaid leave but prepays the lease payments in advance and the novation does not stop, there would be no change in the commitment and the FBT exemption would be maintained

We encourage customers to check the ATO website to understand leave impacts on their PHEV lease.

What happens with my PHEV lease if I go on parental leave?

If you go on parental leave and continue to pay the lease payments/running costs through your salary packaging balance during the period of leave, the PHEV exemption would continue as there is no change to the financial commitment.

If you go on parental leave, cease your novation agreement and make lease payments direct to the financier, we would terminate your account. You would be required to sign a new novation agreement upon return from parental leave to commence the packaging again. In this instance, the PHEV exemption would cease as there is a change to the financial commitment by terminating the original novation agreement and then taking on a new novation agreement upon return.

What happens if a PHEV is replaced due to damage on an existing lease?

If a TOTAL LOSS occurs and the PHEV is replaced (like for like), standard change of asset documentation is required, and the exemption will still apply. Note that the replacement vehicle must be noted on the existing contract and all other contract details including pricing and end date must remain the same.

Does a car ordered prior to 1 April 2025, but not physically delivered or in use by the customer until after 1 April 2025, qualify for the exemption?

No. The car needs to be physically available for the customer by 1 April 2025 to quality for the exemption.

What other situations might impact the exemption?

Change in Employee Role: If an employee who previously had private use of a PHEV is promoted or transferred to a new role that no longer requires private vehicle use, the vehicle’s exemption may be lost if the conditions for private use are no longer met.

Relocation: If an employee moves to a different location where the PHEV is no longer required for commuting or other private uses, the vehicle would lose its exemption due to the change in the agreed terms of use.

Alteration of Usage Conditions: If an employee’s agreement to use the PHEV for personal purposes is altered after April 1, 2025 (e.g., the employee is restricted to only using the vehicle for business purposes), the vehicle would no longer qualify for the FBT exemption.

Changes to financial obligations: An employee won’t be eligible for the FBT exemption from the time there is a change to the financial obligations of one of the parties under a lease because of a change to the lease agreement. For example, if the employee adds new car accessories that results in the change to the residual value of the car and the lease payments.

Optional extensions: If a lease includes an option for the customer to extend the lease, the exemption will not apply for the extension term. This is because it is not a financially binding commitment.

Am I able to break my PHEV lease early and re-lease prior to 1 April 2025 to receive the exemption.

The ATO has cautioned against breaking leases and re-leasing prior to 1 April 2025.

What happens if the company I work for changes novated lease providers and I need to execute a new novated lease agreement?

If a new lease agreement was required, this would constitute a break in the existing lease agreement and a new financially binding commitment. If the new lease agreement is entered into on or after 1 April 2025 for a PHEV, the exemption will no longer be available from the date the existing lease agreement ceases.

However, if an administrative change takes place and a new lease agreement is not required, the PHEV exemption held would still apply.