As businesses continue to adapt to sustainability practices, Fringe Benefits Tax (FBT) regulations are evolving. For the 2025 tax year, one of the most significant changes employers need to be aware of is the update regarding electric vehicles (EVs), particularly plug-in hybrid electric vehicles (PHEVs).

Key Update: Phase-Out of FBT Exemption for PHEVs

The Australian Taxation Office (ATO) has released updated guidance regarding FBT exemptions for vehicles, particularly focusing on the phase-out of the exemption for plug-in hybrid electric vehicles (PHEVs). As of April 1, 2025, PHEVs will no longer qualify as zero or low emissions vehicles for the purpose of FBT exemptions.

What Does This Mean for Employers?

• PHEVs purchased before April 1, 2025, may still be eligible for the FBT exemption under certain conditions. Specifically, the exemption will remain valid if:
  1. The PHEV was already exempt from FBT before April 1, 2025.
  2. There is a financially binding commitment to continue providing private use of the vehicle to an employee or their associate on or after April 1, 2025.

However, any changes to a pre-existing commitment made on or after April 1, 2025 will result in the loss of the FBT exemption for the PHEV from the date of the new commitment.

Examples of Scenarios Where a PHEV Might Lose Its Exemption:

1. 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.
2. 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.
3. 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.

This update encourages businesses to reconsider the types of vehicles provided to employees, particularly if they are currently offering PHEVs that would no longer qualify for the exemption after the 2025 deadline.

Why This Matters for Employers:

• Cost Impact: Employers who currently offer PHEVs as part of their employee benefits package should prepare for the potential impact of losing the FBT exemption. This change could increase the overall cost of providing these vehicles to employees.
• Transition to Fully Electric Vehicles: With the phase-out of the exemption for PHEVs, there is a strong incentive for businesses to shift towards fully electric vehicles (EVs), which will still qualify for the FBT exemption under the new rules. Employers can take advantage of these exemptions to reduce costs and promote sustainability within their workforce.
• Risk of Non-Compliance: Employers who do not adjust their fleet or employee benefits offerings by the deadline may face penalties or additional tax liabilities for failing to comply with updated FBT rules. The ATO requires businesses to adhere to the new definitions and requirements, and non-compliance could result in back taxes, penalties, or interest charges​

How Supervision Can Help You Navigate These Changes

At Supervision, we understand that FBT compliance can be complex, especially with the upcoming changes to vehicle exemptions. Our team is here to assist with:

• Evaluating the impact of the PHEV phase-out on your business and employee benefits programs.
• Shifting to fully electric vehicles to ensure continued eligibility for FBT exemptions. (to confirm if this can be done)
• Tax planning and compliance strategies to ensure your business is fully prepared for the 2025 FBT changes.

Contact Supervision today to start planning your transition and avoid unexpected costs when the new FBT rules take effect in April 2025.