The End of PHEV Exemptions: What Australian Employers Need to Know After 31 March 2025

The Impact of Changes to Fringe Benefits Tax (FBT)

From April 1, 2025, plug-in hybrid electric vehicles (PHEVs) will no longer qualify as “zero or low emission vehicles” under fringe benefits tax (FBT) rules. As a result:

• New salary sacrifice arrangements involving PHEVs entered into after March 31, 2025, will not qualify for exempt benefits.

• The grossed-up value of these vehicles will be subject to full FBT liability.

• Fully electric vehicles and hydrogen fuel cell vehicles will remain eligible for the Fringe Benefits Tax (FBT) exemption beyond April 1, 2025.

This change reflects the government’s focus on supporting fully electric transportation as part of its emissions reduction strategy. Employers should review their vehicle policies and salary packaging arrangements to understand how this shift may affect their FBT obligations and overall tax liabilities.

Grandfather Provisions for Existing Fringe Benefits

Employers providing fringe benefits such as PHEVs before April 1, 2025, may still benefit from grandfather provisions if:

1. The vehicle was used or available for private use before April 1, 2025.

2. A financially binding commitment exists to continue providing the vehicle beyond this date.

However, changes to the original arrangement—such as extending lease terms or modifying payment agreements—could void the exemption. Employers should carefully review their agreements to ensure compliance with fringe benefits tax obligations.

Timing Is Key for Fringe Benefits Provided Before April 1

To take advantage of current rules before they expire:

• Vehicles must be delivered and available for private use before April 1, 2025.

• Simply placing an order or making a payment is insufficient to qualify for exempt benefits under FBT rules.

The ATO has emphasized that delays in delivery due to supply chain issues will not extend the deadline. Employers should act quickly to ensure compliance and avoid paying FBT unnecessarily.

Actions That Could Void Reportable Fringe Benefits Exemptions

Even if a PHEV initially qualifies under grandfather provisions, certain actions can terminate its exempt status after April 1, 2025:

• Extending lease terms beyond the original agreement

• Adjusting financial commitments like lease payments

• Changing employers and re-novating the lease under a new company

• Interruptions in novation due to unpaid leave or other breaks

Employers must ensure that any changes to arrangements comply with ATO guidelines to avoid paying FBT on these vehicles or increasing reportable fringe benefits amounts unnecessarily.

Continued Reporting Requirements for Fringe Benefits Tax FBT

Even when certain benefits like PHEVs remain exempt under grandfather provisions, employers must calculate their taxable value as if the exemption didn’t exist. This is necessary because:

• The grossed-up value affects employees’ reportable fringe benefits amounts.

• Reportable fringe benefits can influence employees’ Medicare levy surcharge and private health insurance rebate eligibility.

• Social security payments may also be impacted by reportable fringe benefits amounts included in taxable income calculations.

Additionally, employers need to account for work-related items such as electricity costs for charging vehicles at home. The ATO provides a simplified method of calculating these costs at 4.20 cents per kilometer.

Strategic Steps for Employers Offering Fringe Benefits

With significant changes looming, employers should take proactive steps to manage their FBT obligations effectively:

1. Audit Current Fleet Arrangements: Identify all PHEVs that may lose their exempt status and assess their taxable value under new rules.

2. Accelerate Planned Acquisitions: Ensure any new PHEVs are delivered and available for private use before March 31, 2025.

3. Review Vehicle Policies: Transition from offering fringe benefits like PHEVs to fully electric vehicles for future salary sacrifice arrangements.

4. Document Agreements: Maintain clear records of when vehicles were first used and details of binding financial commitments.

5. Model Financial Impacts: Calculate how losing exemptions will affect your overall FBT liability and taxable income.

6. Communicate With Employees: Explain how these changes might impact their salary packaging arrangements and reportable fringe benefits.

Alternative Fringe Benefits Options Post-April 2025

Employers looking to provide non-cash benefits should consider alternatives that remain tax-effective under current laws:

• Fully electric vehicles that retain their FBT exemption

• Minor benefits like gym memberships that fall below the minor benefit threshold

• Work-related items such as laptops or mobile phones

• Non-taxable entertainment expenses when structured correctly

By exploring these options, employers can continue offering competitive salary sacrifice arrangements while managing their FBT obligations effectively.

Conclusion

The end of PHEV exemptions under fringe benefits tax rules represents a significant policy shift that requires careful planning by Australian employers. Businesses must act quickly to secure exemptions for any planned acquisitions while preparing strategies to manage increased tax liabilities on certain benefits provided after March 31, 2025.

Employers offering fringe benefits should also explore alternative options like fully electric vehicles or minor benefits that remain tax-effective under current laws. For businesses with complex arrangements involving non-cash benefits such as company cars or gym memberships, professional advice is essential.

At ACT Tax Group, we specialize in helping businesses navigate complex FBT requirements and optimize salary sacrifice arrangements while ensuring compliance with ATO regulations. Contact our team today for tailored advice on managing your fringe benefits tax obligations effectively beyond March 31, 2025.