What Employers Need To Know In 2026

With the FBT year ending on 31 March, now is a key time for employers to review employee arrangements and company vehicles. The Fringe Benefits Tax (FBT) exemption for electric vehicles continues to present a valuable opportunity for Australian businesses. However, eligibility depends on meeting very specific conditions set out by the Australian Taxation Office (ATO).

As more employers consider electric vehicles (EVs) for fleet use or salary packaging arrangements, it is important to understand how the exemption operates and where businesses might fail to satisfy the requirements.

The Electric Car FBT Exemption

Under current ATO guidance, an employer does not pay FBT on the private use of an eligible electric car if all relevant conditions are satisfied.

To qualify for the exemption, the vehicle must:

• Be a battery electric vehicle (BEV) or hydrogen fuel cell electric vehicle (FCEV)
• Have been first held and first used on or after 1 July 2022
• Be provided to a current employee (or their associate) for private use
• Be designed to carry less than 1 tonne and fewer than 9 passengers
• Have never attracted Luxury Car Tax (LCT)

Where the exemption applies, it generally extends to associated running costs such as registration, insurance, maintenance and electricity used to charge the vehicle.

The ATO does not publish a list of qualifying makes and models. Eligibility is determined by applying the above legislative criteria to the specific vehicle. Employers should review purchase documentation carefully before assuming eligibility.

Plug-in Hybrid Vehicles – Important Change

Employers should be aware that from 1 April 2025, plug-in hybrid electric vehicles (PHEVs) are no longer treated as zero or low emissions vehicles for FBT purposes.

A limited transitional rule may apply where:

• The vehicle was provided and available for private use before 1 April 2025; and
• There was a financially binding commitment in place prior to that date.

For new arrangements entered into after 1 April 2025, PHEVs will generally not qualify for the exemption.

Luxury Car Tax – The Critical Threshold

Eligibility for the exemption depends on the vehicle having never been subject to Luxury Car Tax.

For the 2026 financial year, the LCT thresholds (GST-inclusive) are:

• $91,387 for fuel-efficient vehicles (which includes most battery electric vehicles)
• $80,567 for other vehicles

Luxury Car Tax is imposed at 33% on the value above the relevant threshold.

This is often misunderstood: if the vehicle’s original price (including GST and accessories) exceeded the LCT threshold, it does not qualify for the FBT exemption, even if sold later at a lower price.

In practice, this means some higher specification or premium EV models will not be eligible despite being fully electric.

Depreciation deduction limit

For the 2026 financial year, the car depreciation cost limit is $69,674, and this cap applies to all passenger vehicles, including electric vehicles. Regardless of the purchase price, income tax depreciation deductions are limited to this amount.

In practical terms, any expenditure above $69,674 does not provide additional depreciation deductions for tax purposes.

Electricity and Charging Costs

Where the exemption applies, electricity used to charge the vehicle is treated as a car expense and is also exempt from FBT.

However, electricity costs must still be calculated on a reasonable basis. The ATO provides a home charging rate method that employers may use when determining electricity costs for FBT purposes.

It is important to note that a home charging station itself is not automatically treated as a car expense and may give rise to a separate fringe benefit.

Reportable Fringe Benefits

Even where no FBT is payable, the taxable value of the exempt benefit may still need to be reported as a Reportable Fringe Benefit Amount (RFBA) if it exceeds $2,000 for the FBT year.

While an RFBA does not increase an employee’s taxable income, it can impact other income tested obligations such as:

• Medicare levy surcharge
• HECS/HELP repayments
• Family assistance entitlements

This is an area that should be discussed with employees entering into salary packaging arrangements.

Summary and Practical Considerations

The electric vehicle FBT exemption is a valuable tax incentive for employers, but eligibility criteria are strict and thorough documentation is essential. Before introducing EVs to your fleet or implementing employee arrangements such as novated leases, it is important to review the proposed structure carefully. Proper planning ensures compliance, maximises tax benefits, and avoids unintended FBT liabilities.