Businesses told to prepare for phase out of PHEVs from FBT exemption: Grant Thornton
Plug-in hybrid vehicles will no longer be exempt from fringe benefits tax unless a financially binding commitment has been made before 1 April 2025.
Grant Thornton warned employers that from 1 April 2025, plug-in hybrid vehicles (PHEVs) will no longer be exempt from fringe benefits tax (FBT).
However, this will not apply if a financially binding commitment was made before this date.
An independent senator’s bill and lobbying efforts proposed an extension to the law until 2030, but the current law stands firm.
The ATO provided guidance on what constitutes a change in commitment affecting novated leases, lease extensions, and pool cars.
Grant Thornton said employers must stay informed to ensure accurate FBT returns in 2026.
“PHEVs will no longer be exempt from 1 April 2025, unless a commitment to the application or availability of the car was made before that time, and no new such commitment made after that time,” it said.
“The ATO interprets this commitment to be a financially binding one that includes provision for private use.”
ATO guidance provided insight into examples of a change in financially binding commitment:
· Taking up an optional extension to a lease.
· Breaks in novated leases, such as periods of unpaid leave where employees pay lease payments directly.
· Adding accessories to the car that are added into the lease and cause a change in the amount subject to finance.
· A novated lease being transferred to a new employer.
The ATO also specified examples where there is no change in commitment, such as when lease payment amounts change in terms of maintenance and running costs, as stated by the original lease agreement.
Another example included when a vehicle under a novated lease is ‘written off’ and replaced by an insurance company, with the new vehicle being added to the original contract.
Grant Thornton noted pool cars available for use by multiple employees will not be considered by the ATO as a financially binding commitment and will lose exemption on 1 April 2025.
Other examples not considered by the ATO include an employer-owned car allocated for the use of a specific employee, subject to change due to said employee leaving an organisation, and if a pool car available to multiple employees via a booking system is taken out of the pool and allocated to a specific employee to be used consistently.
Grant Thornton said if this occurred before April 1 2025, FBT exemption could continue until there was any change in that commitment.
“Employers with PHEVs will need to be clear on what commitments have been, or are being, made prior to 1 April 2025, and then monitor for any changes after that date, to ensure the correct FBT treatment can be applied in their 2026 FBT returns,” it said.
“Employers should remember that reportable fringe benefits amounts need to be determined for these cars, including for periods they are exempt from FBT.”
This could mean two different calculations for a car in the same FBT year, which could present challenges if the operating cost method is applied.
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