Starting 1 April 2025, plug-in hybrid electric vehicles (PHEVs) will no longer be exempt from Fringe Benefits Tax (FBT) unless a legally binding commitment was made before this date. Despite advocacy efforts and a proposed Independent Senator’s Bill seeking to extend the exemption until 2030, the current legislation remains unchanged.
The Australian Taxation Office (ATO) has issued guidance on what qualifies as a financial commitment, particularly impacting novated leases, lease extensions, and pool vehicles. Employers must stay informed to ensure compliance in their 2026 FBT returns.
Understanding Financial Commitments
The ATO considers a commitment financially binding if it includes provisions for private use. Key scenarios that could alter FBT treatment include:
- Extending a lease through an optional provision.
- Interruptions in novated leases, such as periods of unpaid leave where employees directly cover lease payments.
- Adding accessories to a vehicle, where costs are incorporated into the lease and change the financed amount.
- Transferring a novated lease to a new employer.
On the other hand, the following circumstances do not indicate a change in financial commitment:
- Adjustments in lease payments for maintenance or operational costs, as per the original lease agreement.
- Replacement of a written-off vehicle by an insurer, as long as the new vehicle is listed under the original contract with all other terms intact.
- Pool vehicles available to multiple employees, which the ATO does not classify as financially bound commitments. These vehicles will lose their FBT exemption from 1 April 2025.
Other Key Considerations
Some situations, not explicitly addressed in ATO guidance, may still signal a change in commitment, including:
Reassigning an employer-owned vehicle to another employee after the previous user departs.
Removing a pool car from shared use and assigning it to a single employee permanently. If this transition occurs before 1 April 2025, the exemption may continue until a further commitment change happens.
Employer Action Plan
To ensure compliance with the updated regulations, employers should:
- Assess current commitments to identify vehicles eligible for continued exemption after 1 April 2025.
- Monitor any modifications in lease agreements, vehicle assignments, or other financial commitments to prevent unexpected FBT liabilities.
- Properly calculate Reportable Fringe Benefits Amounts (RFBA) for vehicles, even for periods when they remain exempt. This may necessitate separate calculations within the same FBT year, particularly under the operating cost method.
By staying informed and taking proactive measures, employers can effectively manage these changes and ensure accurate FBT reporting for the 2026 tax year.
Need help with understanding how this will impact you? Feel free to get in touch with us at hello@fourtwelve.com.au. We can also be reached here.
