Plug-in hybrids and the FBT exemption

From 1 April 2025, a plug-in hybrid electric vehicle (PHEV) is no longer a “zero or low emissions vehicle” under FBT law. A PHEV novated today is valued like any petrol car: 20% of its base value each year, usually paid from after-tax pay. The exemption survives only on some older leases.

The two conditions to keep it

The ATO lets an employer keep applying the exemption only if both are true:

1. the PHEV was used, or available for use, before 1 April 2025, and that use was exempt; and
2. there is a financially binding commitment to keep providing it for private use on and after 1 April 2025. An optional extension does not count.

What ends it early

Any change that creates a new commitment ends the exemption from that date. The ATO’s examples:

• Optional extension (Simon): a 3-year lease from 1 April 2024 with an option for 2 more years is exempt to 31 March 2027 only. Taking up the option does not carry the exemption over.
• A break in the novation (Tony): 3 months’ unpaid leave during which the novation stopped and he paid the lease himself ended the exemption, even though the lease end date did not move. Prepaying the lease so that the novation never stops would have kept it.
• Changed payments or residual (Cade): accessories fitted in July 2025 that raised the payments and the residual ended the exemption. A bundled service charge that the contract already allows to vary (Katie adding roadside assist) did not.
• New employer (Courtney): after a redundancy, a new employer taking over the same lease is a new commitment. Moving between branches of the same employer, with no break in the novation, is not.
• Write-off (Hudson): an insurer’s comparable replacement car noted on the same contract, with price and end date unchanged, keeps the exemption.

What losing it costs

Same $60,000 PHEV, $110,000 salary, 5 years at 8% (example rate), ATO minimum residual, example running costs:

• lease binding before 1 April 2025, still exempt: $379 a fortnight;
• lease signed now: $556 a fortnight, with $12,000 a year paid after tax to cancel the FBT.

Try your own figures in the calculator (choose “Plug-in hybrid” and your lease date).