In a Nutshell:
The PHEV FBT exemption ends on April 1, 2025. This change means novated lease costs will increase for PHEV’s. However, existing leases may still qualify under certain conditions.
Key Takeaways:
- PHEVs leased before April 2025 keep the FBT exemption for their entire lease term, so long as the agreement is not changed in any way that would technically ‘create a new agreement’
- If your lease is modified after April 2025, you may lose the exemption
- EVs & hydrogen fuel cell vehicles (HFCVs) stay FBT-exempt
- If you were considering a new, or extension of, a PHEV Novated Lease, you need to lock in a lease now to avoid thousands in extra costs
What’s Changing?
In July 2022, the Australian Government introduced an FBT exemption for low-emission vehicles, reducing lease costs for employees by 30-40%.
However, from April 1, 2025, plug-in hybrid electric vehicles (PHEVs) will no longer qualify.
Who’s Affected?
- New PHEV leaseholders after April 2025 (no more FBT exemption)
- Current PHEV leaseholders who modify their lease post-April 2025
- Employers offering salary-packaged vehicles
Those with fully electric vehicles (EVs) & hydrogen fuel cell vehicles (HFCVs) will remain unaffected. There doesn’t appear to be any plan to remove the FBT exemption for these types, for the foreseeable future.
How it Affects Current PHEV leaseholders:
PHEVs leased before April 2025 will retain the exemption, but only for as long as the pre-existing lease lasts.
Lease extensions need to be done before April, or they will attract FBT:
- The exemption will continue to apply only for pre-existing, financially binding leases as at April 1st.
- Let’s say you took a binding lease agreement for a PHEV in March 2025 for 3 years, and made no changes to it, you could retain the exemption until March 2028 when it was set to end.
- If you then got to March 2028, and you wanted to extend to a full 5 year lease (add 2 optional years), those 2 optional years would not be FBT exempt, as those 2 years were not part of a financially binding agreement that existed before the exemption ended, they were optional, not contractual.
- If you are part way through your PHEV lease, and think you might want it for longer than you had agreed too, you’ll need to get those additional years into a contract before April 1st to keep the savings.
Any change that creates a new agreement, will void FBT exemption from the day of the new agreement. This can include:
- Changes to finances on the lease: changing your lease payments, or the residual value of the car will technically change the finances on the lease, and create a new agreement. Adding accessories that change the value of the car (even if it’s just a bullbar) as part of the Novated lease, count as changing the residual value and changing the agreement.
- Switching to a new employer: If you switch to a new employer (even within the same group of companies), and a new entity will be making the lease payments, that will technically create a new agreement, and the new agreement will attract full FBT.
- A break in the novation agreement with the employer: This can happen if there is a situation where the employer isn’t making lease payments, because you are not getting paid, like taking extended unpaid leave. The exception is if the employee pays their employer for the lease payments in advance of the leave, then the novation agreement then doesn’t stop.
How it Affects Employers:
Employers who have a foreseeable merger/acquisition, or for any reason will be legally changing to a different entity – need to be very aware of the fact that employees with a PHEV novated lease cannot change employers from April 1st, 2025 – without it changing their agreements, and revoking the FBT exemption.
Compared: a PHEV Novated Lease With & Without the FBT Exemption
All PHEV’s will see an increase of 30-40% in cost once the FBT Saving no longer applies.
Example – 2024 Mitsubishi Outlander PHEV (Novated Lease)
| Scenario | Before April 2025 (FBT Exempt) | After April 2025 (FBT Applies) |
|---|---|---|
| Pre-tax lease cost | $299/week | $299/week |
| FBT Savings | -$85/week | No Savings |
| Final Cost | $214/week | $299/week (+$4,420/year) |
Conditions That Affect Your PHEV Lease After April 2025
- Will My Existing PHEV Lease Still Be Exempt?
Yes—as long as the lease remains unchanged, the FBT exemption applies for the entire term. - What if I Extend or Modify My Lease?
If you refinance, extend, or make major changes to your lease after April 2025, the FBT exemption may no longer apply. - What if I Transfer My Lease to Another Employer?
The exemption may still apply if the terms remain identical, but the ATO hasn’t confirmed all scenarios. Always check with your salary packaging provider.
What Should You Do Before April 2025?
- If you are considering a PHEV novated lease, locking it in before April 2025 ensures you get the FBT exemption for the full lease term.
- If you currently have a PHEV novated lease, and think you’ll want it longer, consider extending it now to maintain savings longer.
- Talk to Your Employer. Ask them or your salary packaging provider about how your lease structure might be affected after April 2025.
FAQs:
Q: Will my novated lease cost more after April 2025?
Yes. If you lease a PHEV after April 1, 2025, it will no longer be FBT exempt, increasing costs. However, existing leases stay exempt for as long as they remain unchanged.
Q: I have an existing PHEV lease. Can I extend it, and keep the FBT exemption?
No. Extending or modifying your lease after April 2025 may cause you to lose the exemption. Extensions or modifications need to be done before April.
Q: Do all electric vehicles lose the exemption?
No. Battery electric vehicles (EVs) and hydrogen fuel cell vehicles (HFCVs) remain FBT-exempt for the foreseeable future.
Q: Should I switch to a EV instead?
If you were considering a PHEV for tax savings, but cannot get one before the April deadline – the good news is that EVs still remain FBT exempt indefinitely, so you still have an affordable long-term option.
Final Takeaway: Act Before April 2025 to Lock in Savings
The PHEV FBT exemption is ending soon—but you can still lock in savings if you act now. Understanding these changes could save you thousands.
