FBT for Employers: EV Exemption Changes, Compliance Traps and What to Check Before You Lodge
The FBT exemption for electric vehicles is being wound back, and the ATO's data-matching is catching more employers out on car benefits than ever. Whether you're reviewing a salary-packaging policy or just making sure your last FBT return holds up, here's what's changed and what to check before you lodge.
The short version
Even if the employer provides only FBT-Free EV benefits, it must still be registered for FBT and lodge an annual FBT return. Sometimes a painful inconvenience.
The FBT exemption for electric vehicles is being phased down from 1 April 2027, capping the full exemption at vehicles priced $75,000 or under — announced in the 2026–27 Budget, not yet law
Plug-in hybrids already lost their FBT exemption from 1 April 2025, unless a private-use commitment was locked in beforehand
The ATO is data-matching car benefits — dual-cab utes aren't automatically exempt, and a car garaged at home counts as "available for private use" even without permission to drive it
FBT can still apply where a "contractor" arrangement looks more like employment in substance
Simpler ATO-approved record-keeping declarations are now available as an alternative to traditional logbooks
What's changing with the FBT exemption for electric vehicles?
Right now, employers can still provide an eligible EV to a current employee completely free of FBT. To qualify, the vehicle generally needs to be:
A battery electric or hydrogen fuel cell vehicle (plug-in hybrids no longer qualify — see below)
First held and used on or after 1 July 2022
Provided to a current employee or their associate, for private use
Valued below the luxury car tax threshold for fuel-efficient vehicles — $91,661 for 2026–27, up from $91,387 the year before
Even where the exemption applies in full, the benefit still needs to be reported as a reportable fringe benefit amount on the employee's income statement — exempt from tax, but not invisible to the ATO.
That's the position today. The 2026–27 Federal Budget announced a phased wind-back of the exemption, designed to focus the concession on more affordable models:
| Period | EVs $75,000 or under | EVs over $75,000 (up to LCT threshold) |
|---|---|---|
| Now – 31 March 2027 | Full FBT exemption | Full FBT exemption |
| 1 April 2027 – 31 March 2029 | Full exemption continues (0% statutory rate) | 25% discount on FBT (15% statutory rate) |
| From 1 April 2029 | 25% discount only | 25% discount only |
These changes haven't been legislated yet, and the Government has confirmed that vehicles already on a lease or salary-packaging arrangement will keep the rate that applied when the arrangement began. If you're planning new EV arrangements, the 2027 cut-off is worth building into the timing.
What about plug-in hybrids? PHEVs lost their FBT exemption from 1 April 2025. The only exception is where the vehicle was already exempt before that date and there's a binding commitment to keep providing it for private use — if that commitment changes or breaks, the exemption is generally gone for good.
Is your business making these common FBT mistakes on vehicles?
The ATO uses data analytics to cross-check vehicle benefits against what businesses actually report, and a handful of errors keep showing up:
Assuming a dual-cab ute is automatically exempt. It isn't — eligibility depends on the vehicle's design and how it's actually used, not the body style alone.
Treating a car garaged at an employee's home as business use. The ATO's position is that a vehicle is "available for private use" if it's garaged at or near an employee's home, regardless of whether they're actually permitted to drive it privately.
Not lodging an FBT return at all, often because a business doesn't realise that providing cars, car parking, entertainment or staff discounts can create an FBT liability — even where the only "staff" are family members.
Relying on an invalid or missing logbook. Without one, the ATO can default to the statutory formula method, which often produces a higher taxable value than actual usage would justify.
Real-world example
The ATO has publicised cases showing what this can cost in practice. One Melbourne restaurant ended up with a total FBT bill of $938,000 after failing to lodge returns and keep valid logbooks for its vehicles — made up of the unpaid tax itself, a 75% penalty for reckless conduct, and interest on top. Saying "we didn't realise" rarely helps once data-matching flags the gap.
Could your contractors really be employees?
FBT generally only applies to benefits provided to employees and certain office holders — not to genuine independent contractors. The catch is that "genuine" isn't decided by what the contract calls someone. The ATO's ruling TR 2023/4 starts with the actual terms of the written agreement rather than how the parties behave day to day, so simply labelling someone a contractor doesn't settle the question if the contract's terms point to an employment relationship.
Arrangements tend to hold up better where there's a comprehensive written agreement, both parties understand what the classification means, and how the relationship actually runs hasn't drifted from what the contract describes. Even a genuine contractor can trigger employer-style obligations in specific areas — superannuation guarantee and payroll tax are the most common — so it's worth reviewing these arrangements periodically rather than setting and forgetting them.
What else should you check before lodging your FBT return?
Record-keeping has gotten a bit simpler. Rather than relying only on traditional logbooks and travel diaries, the ATO now accepts a range of alternative declarations covering things like living-away-from-home arrangements, relocation transport and otherwise-deductible expenses, provided they meet the relevant requirements. If record-keeping has felt like a burden, it's worth checking whether a simplified option now applies to your business.
Client entertainment can create a mismatch the ATO notices easily. Meals and similar entertainment expenses generally aren't deductible and don't carry GST credits unless they're also subject to FBT — and which FBT method you use changes the outcome:
| Treatment | Actual method | 50/50 method |
|---|---|---|
| FBT on staff meals under $300/head (infrequent) | Usually exempt (minor benefit) | 50% subject to FBT |
| Tax deduction | Not deductible | 50% deductible |
| GST credits | Not claimable | 50% claimable |
Employee contributions made only by journal entry need to be real, not just bookkeeping. Many businesses reduce a benefit's taxable value using after-tax employee contributions processed through the accounts rather than paid in cash. That's fine in principle, but the ATO wants to see a genuine, documented obligation on both sides — an arrangement agreed under the employee's remuneration terms, recorded no later than when that year's financial accounts are finalised. A journal entry added in after the fact, with nothing to back it up, is exactly the kind of gap the ATO looks for.
Frequently asked questions
Is the FBT exemption for electric vehicles being phased out? Not entirely, and not yet. The full exemption continues for arrangements entered into before 1 April 2027. After that, a $75,000 price cap applies to the full exemption, with eligible EVs priced above that (and below the luxury car tax threshold) receiving a 25% discount instead. From 1 April 2029, the 25% discount becomes the standard treatment for all eligible EVs. This was announced in the 2026–27 Budget and hasn't yet been legislated.
Are dual-cab utes exempt from FBT? Not automatically. Whether a dual-cab ute qualifies for a work-related vehicle exemption depends on its design and how it's actually used — body style alone doesn't decide it, and it's a common assumption that catches businesses out.
Does FBT apply to payments made to contractors? Generally no — FBT applies to employees and certain office holders, not genuine contractors. But if the working relationship looks more like employment than independent contracting, the ATO can treat it as one, with FBT and other employer obligations applying as a result.
What happens if my business doesn't lodge an FBT return when it should? You risk penalties and interest on top of the underlying tax, and the ATO's data-matching makes these gaps increasingly easy to spot. Even closely held businesses with only family members on the payroll should check their position if they provide cars, car parking, entertainment or staff discounts.
Can I claim a tax deduction for taking a client to lunch? Generally not, unless the expense is also subject to FBT. Genuine client entertainment typically isn't deductible and doesn't carry GST credits, regardless of which FBT method your business uses.
FBT is one of the easiest things for the ATO to flag through data matching, and one of the more expensive things to get wrong. If you're unsure whether your business has an FBT obligation, or want a second opinion on your record-keeping before your next return, get in touch with our team.